Types of Debt Used by Consumers

No one can predict the need for money, and not all the time you will have plenty of cash money in your hand. Majority of Indians have encountered with some form of debt at any particular point of their life. Thus, debt has been categorized into several categories. They are secured debt, the unsecured debt, Mortgages and also the revolving debt. We all know that not all the debt is created equally and thus you can easily differentiate one from another.

Types of Debt

Let us have detailed knowledge of the debt discussed above.

Secured Debt

It is a type of debt, which is backed by an asset only for the collateral purpose. I guess you might have got confused with this statement, so let me make it clear with an example. Suppose, if you take a loan to buy any piece of land then at that moment the lender will make a deal, which says if you are not able to pay the amount the lender can sell the land and recover his money. In this scenario, if you are not able to clear the loan, then the lender will direct sell your land in an auction. The main benefit of the secured loan is that their interest rate is very low. But everyone cannot avail this debt because these sorts of debt are given to the person who has good credit in the market.

Unsecured Debt

In case of the unsecured debt you do not need to provide any security. The loan is availed only with the promise and the ability to repay the loan as soon as possible. An individual should never opt for this loan because if you do so, then you have to pay a high rate of interest to the lender. Moreover, even if you don’t give any securities, but you will be still bound by an agreement over which you can claim for the money. Some common examples of this type of debt are a credit card, the gym membership contracts and also the signature loans. While taking this debt, you won’t find enough problems, but the real pain starts when you need to repay the money.

Mortgages

You will find it quite surprising to know that mortgages are the largest form of debt that is taken by the citizen of India. The mortgages loans are mainly taken to purchase any property, and the individual put their securities of any immovable property. If you compare all forms of debt, then you will find that the mortgages one has the lowest rate of interest while taking a loan. And the best part is that the interest that you pay is tax deductible. If you want, then you can transform your mortgages debt in the form of monthly installment, where you just need to pay some small amount against your loan. Generally, you need to pay this amount for a certain time period, and it makes the monthly payment much easier.

Revolving Debt

You might be confused with the term revolving debt, let me tell you that it is nothing but an agreement that is made between both the consumer and lender. As per this agreement, the customer can borrow an amount, which is subjected to an upper limit, and you need to pay the money on a recurring basis. You can say that all the credit card falls under the sub-category of revolving debt. For example, you can say that credit has got its maximum limit and you cannot purchase anything which is more than the limit of the card. So, without thinking much a customer can spend that amount on shopping or any basic need. The unique part of the revolving debt is that the payment amount entirely depends upon the amount of money that you took for the loan. You can also say that the revolving debt is a form of the unsecured debt, which is very much similar like in the case of credit card.

These are some of the major categories of debt that is found in India. If you want any debt, then you need to analyze the type of debt that is mentioned above. After that, you need to select any one depending upon your requirement.

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