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Loans Without Collateral
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Not all debt is equal. Some debt comes with built-in collateral— that is, something you can pay the debt with without digging into your pockets, while other debt does not. Debt without collateral usually comes with a higher APY, annual percent yield, meaning they will be more expensive long-term. Debt that does not come with collateral is usually for a service or good, like student loans or credit card debt. Usually debtors will have some backup plan in the case of a default, however, such as insurance or government backing.
Tips
- Collateral: Something you can pay back with instead of money.
- Debt without collateral has higher APY to protect investment.
- Student loans and credit card debt are examples without collateral.
- This debt can have insurance or government backing to reduce APY.