Different Types of Debt

Many of us have had to borrow money. In the modern world, it’s not easy without it. What’s more, even large companies and developed countries, like the US, have debts. As of June 2021, the US debt is approximately 28 trillion dollars.

Essentially, debt is a material means, almost always money, which the debt owner takes for some purpose with the condition to return the funds to the debt holder. The owners of the debt can be individuals and legal entities. In this article, we will learn what types of debt individuals can have.

Types of Debt

Personal debts can be categorized into the following groups.

Secured Debt

In secured debt, the borrower guarantees the repayment of the debt by collateral. If the borrower doesn’t pay the debt back for some reason, the lender can sell the collateral and take the amount of the remaining debt from the proceeds. This type is less risky for lenders, so when the lender doubts the client’s financial stability, they demand collateral. On the other hand, it’s risky for the borrower because lenders try to estimate the collateral price as low as possible to sell the collateral faster in case of non-payment of the debt.

Unsecured Debt

Unsecured debt doesn’t require collateral. For such transactions, lenders rely on the borrower’s income and credit history profile. The lender signs a contract with the borrower that the latter will return the borrowed funds following the agreement terms. In case of non-compliance with the contract by the borrower, the lender goes to court to recover the debt. This type is riskier for lenders because they have to spend money on a lawyer without a 100% guarantee of repayment. In addition, if the amount owed is small, the cost of lawyers may be greater than the debt.

Payday Depot is an example of a lender providing short-term unsecured loans from $200 to $5000 for personal emergency cases. You can use it if you meet several criteria, the main of which is having a regular income and being at least 18 years old. The application process is fast and done online.

Revolving and Non-Revolving Debt

Тhe idea of revolving debt is that there is no specific amount of loan with a specific payment schedule. The lender gives a debt limit from which the borrower can use the required amount when needed. You can take a part of the loan, make payments several times, and then, without paying back the entire debt, take it again within the allowed limit. Even if the debt is repaid, the credit line isn’t closed, and you can use it again. In the case of non-revolving/installment debt, you take a specific loan amount with a fixed payment schedule, making monthly payments until the sum is repaid.

Mortgage

This is probably the most popular type of loan, which many people use to buy goods. In fact, it is considered a secured debt, but it has one peculiarity. The collateral is the product for which the loan is taken.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top