![]() Such debts are facilitated only on the basis of the borrower's creditworthiness hence do not involve any collateral assignment. Unsecured debt: Unlike secured debts, unsecured debts need not be covered by any collateral as a security. Therefore, the debts that are secured by pledging the borrower's collateral are known as secured debts. If the borrower fails to pay back the debt, these securities are liquidated to repay the debt. An agreement is drafted by pledging the collaterals as the security. The collateral that can be used here are investments, securities, boats, vehicles, property, and other pricy assets. Here the borrowed amount is secured and backed by the collaterals such as assets and properties of a value good enough to cover the debt. Secured debt: A collateralized debt is known as a secured debt. Debt can be classified under four major categories: Some of the famous forms of debt are:Īfter understanding "What is Debt?” let's move to its type. When a party or corporation borrows money to make big purchases or investments that are normally unaffordable and has to be repaid within a certain time, along with an interest, such borrowed sum is called debt. The credit providers always charge a certain amount on the credit or the debt, which is known as interest. Everyone, be it an individual or a corporate firm, has debt at least once in a lifetime.īefore taking debt, one must be very careful because the amount of repayments is always higher than the sum borrowed. Debt is an amount of money one borrows and has to pay back later. The answer to the question, "what is debt?" is the sum that a person borrows from the other is called a debt. There are different types of debts that vary with the requirements of the borrower. The amount as well as the approval of the debt depends upon the creditworthiness of the borrower. A debt is the sum of money that is borrowed for a certain period of time and is to be return along with the interest. Debt can be simply understood as the amount owed by the borrower to the lender. ![]()
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