What is secured debt?

24 May2021

We're all familiar with the term 'debt' - but you might not know that it can cover quite a few different things.

When it comes to personal debt, there's a long list of different types: personal loans, overdrafts, credit/store card debts, catalogues and mortgages, to name just a few.

Having said that, all debts fall into two basic categories: secured and unsecured. The consequences of falling behind with different types of debt are different, so it's important to know exactly where you stand.

In this article, we'll look at what secured debt is, and what the effects of non-repayment could be.

Secured debt

A secured debt is basically any type of money that you borrow 'against' one of your valuable assets. One common example of a secured debt is a mortgage, which is secured against your home. As a result, if you don't keep up with your agreed payments towards your mortgage, your home could be sold in order to raise the money you owe your mortgage lender.

You could also get a secured loan if you're a homeowner with enough equity in your property. If you secure a loan against property, you might be able to borrow more than you could with an unsecured loan - and it could also come with a lower interest rate. Securing the loan against your assets will give your lender an extra level of security.

If you're looking for more information on different types of debt, this page could help.

Non-repayment of secured debts

Secured debts are often referred to as 'priority' debts. This means you really need to make sure they're covered, since non-repayment of them could come with severe consequences, which can be more drastic than the consequences of not repaying unsecured debts (such as credit cards, overdrafts and catalogues).

If you don't repay your secured debts as agreed, you could end up losing your property, although this wouldn't happen straight away, and your lender would work with you to try and find another way of solving the problems you're facing.

You can find more debt advice here.

Dealing with secured debts you can't repay

Since the consequences of not repaying any secured debts you have could be severe, it's important to take action quickly if you find you're struggling to make your monthly payments.

If you're in this situation, you should speak to your secured lenders as early as you can: you may be able to reach an arrangement with them that lets you make lower monthly payments temporarily, or even take a 'payment holiday' if necessary. Just make sure you understand exactly what this would involve (it could cost you more in the long run, for example).

On the other hand, you might be able to tackle your debt problems without doing that, as long as you don't leave it too late - putting a budget together can help you change your spending habits and make sure you can afford all your essential monthly outgoings.

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