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United Settlement » What is Secured Debt?
marcel April 9, 2019

What is Secured Debt?

Secured debt refers to debt that is collaterally backed, such as a home mortgage or auto loan, and since the debt is backed by physical assets that serve as security and can be seized and sold in the event of non-payment, secured debt is less riskier than unsecured debt to the lender.

Consequently, secured debt comes with lower interest rates and generally more favorable terms than unsecured debt. Additionally, since secured debt lenders are more focused upon the liquidation value of the assets pledged as security to the debt, an individual’s creditworthiness – though still significant – will play a reduced role in the process of pursuing secured debt as opposed to when pursuing unsecured debt.

It’s very important for a debtor to realize that the collateral backing a secured loan is vulnerable to seizure and sale in the event of non-payment of the debt. It is this security of knowing that collateral can be seized by the lender that allows secured debt creditors to offer lower interest rates and more favorable terms.

Types of Secured Debt

Secured debt is backed by assets that can be sold in the event of non-payment by an individual debtor or company. The most common form of secured debt is a home mortgage, which is collaterally backed by the physical property that is financed by the mortgage debt.

Additional common examples include auto loans and home equity lines of credit. If a borrower falls delinquent on these forms of secured debt, the lender can foreclose on the property or repossess the vehicle. In fact, as long as borrowers of secured debt have a balance outstanding, they never fully “own” the underlying asset that has been collaterally backing the secured loan.

Only when a secured debt is fully paid off will a lender release the asset free of any lien that could otherwise result in seizure and sale of the underlying asset.

Other Forms of Secured Debt

Another example of secured debt that may not be as commonly considered includes a company’s pledging of accounts receivables as collateral that a lender can utilize to secure repayment.

A title loan is another form of secured debt, as the debt is secured by the title to a vehicle or other asset. Finally, the entire pawnshop industry is built upon the concept of secured debt, as pawn shops effectively give loans based upon the resale value of the item being “pawned” as collateral.

How Does A Creditor Collect on a Secured Debt?

When secured debts are not paid back in a timely manner, creditors have more rights than they would have if the unpaid debt is unsecured. With unsecured debt, creditors often need to file a complaint in State or Federal court before eventually receiving a judgment and moving ahead with collecting the balance through the legal process.

However, secured creditors have a quicker and more direct route than proceeding through the court system. Since liens are attached to real property through mortgages, creditors can efficiently seize and sell off property in a foreclosure auction. Foreclosure actions frequently require little to no court proceedings and can often be completed within a matter of months.

Similarly, the lien attached to an auto loan allows for quick repossession in the event of non-repayment. Lenders can also be granted liens on personal property including equipment, furniture, inventory, and investment assets though a security agreement. These forms of personal property are also subject to seizure and sale as a result of the lien attached to the secured debt, and can often be completed with little to no court action.

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Excellent

Based on 377 reviews.
Overall 4.4 out of 5 stars

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Annette Huggins

March 14

That when it seems like nobody can help United will.

This was a great experience for me. I am just starting but Madelene Gallon made me feel like we were friends for years. She tried to make me feel that she would help me and make sure I got the best deal...

Kiirstin

March 01

Kind and caring

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Kiirstin

March 01

Kind and caring

Had been searching for a while for a company I could trust to get me out of crippling debt. Really didn’t think it was possible. Spoke to Ben at United Debt and he assured me that not only was it possible,...

Dylan

February 28

Quick, easy assistance!

I've been working with Ben at United Debt to help me organize and get out of debt for once - I've been dealing with debt for ages and Ben showed me some simple ways to begin dealing with things to keep...

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February 14

I need help

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December 21

Great!

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December 20

Paying back

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December 14

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November 23

Do your home eork

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Dm

November 18

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November 16

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November 03

Very helpful

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October 31

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August 23

That this company has integrity!

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June 04

Professional and focused on facts and truth not hype. Excellent. We want to know facts.

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October 25

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Scott W O'Neill

August 01

Thanks for all your help and negotiations.

Thanks for the update! I have faith in you guys and will continue my payments. Thanks for all your help and negotiations.

Cassandra Robinson

July 30

That A Settlement Was Entered.

I Absolutely Love You All At United Settlements. You All Have Saved My Credit Solutions. I Would Refer Everyone To You Services.

Mildred Yvonne Sherron

July 16

The results of the settlement attempts.

So far, I have found United Settlement more than satisfactory. Very conscientious and very efficient in providing a service in debt settlement. Thank you and all the members of your team who are assisting...

Diana Cardona

July 16

Tough Financial Hard Times During Covid-19

I signed up with United Debt Settlement because of large credit card debts, which had taken a financial toll on my credit. UDS has an outstanding reputation assisting clients like me achieve financial recovery...

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