What is a secured debt?

A secured debt is a product that is taken out with a type of guarantee. The guarantee is that if the debtor does not make repayments, the 'security' is then an asset that can be claimed against in the courts. In most cases, this type of secure asset is a house or property. This is usually because the value of the house, plus any equity is usually much more than the value of the debt. However, should a creditor force the debtor to become bankrupt, it is unlikely that the property would sell for a good price, and so this is not always the best way for creditors to be compensated.

The most obvious types of secured debt are mortgage loan products - used to purchase properties and remortage loan products - used for a range of purposes but again secured against the up to date valuation of the property. It is also possible to get a host of high street loans, which receive preferential rates of interest because they are secured against the borrower's assets.

Sometimes a debt consolidation loan can be used to sweep up financial problems with numerous unsecured debts. For instance, when someone has high credit card interest rates, raising repayment levels on multiple cards, it is often more sensible for them to take out a single loan that can lower their repayment rate. This is when unsecured debt becomes secured debt. Some critics have a problem with this change in debt status, where others welcome the relief from the credit card Harpies.

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