What Is Unsecured Debt?Why is unsecured debt so important in the economy? A loan or debt which is not secured by a house or other collateral asset can be a risky way to lend money. Such loans have a long history. One of the earliest personal loans ever recorded was by Samuel Pepys in 1668. He agreed to lend his cousin Roger the sum of five hundred pounds which would have been a fortune at the time. In those days, if a man wanted a loan, his best chance was from another member of his family. Pepys wrote: 'wherein I do wholly rely on his honesty, not having so much as read over what he hath given me for (security)'. This really was an unsecured debt. It is fair to say that the sophistication of lenders has moved on remarkably since then. Of course loans were made long before Samuel Pepys got into the game, he just happened to record his life more than most other people and had the good fortune to become well known for centuries to come. John Shakespeare, father of William, had a part-time career as a money lender. Even in the 1540s, it seems that people needed credit. In those days, there were no bankruptcy laws, individual arrangements or negotiators. A serial defaulter could be sent to debtors prison where torture, starvation, disease and death were common. From these early times, the unsecured debt market has grown tremendously. The hyper competitive financial services markets of the developed world, combined with mass direct marketing mailshots, credit card special offers and student loans has made unsecured credit easier than ever to find. Debt has enabled vast numbers of people to own their own homes, travel the world, start businesses and generally improve their standard of living. For all the fears many have about debt, these are pusuasive arguments that debt is a good thing. It does however, depend upon the type of debt. Unsecured lending is generally riskier and therefore attracts a higher interest rate. Much of this unsecured debt turns up in the consumer spending figures which help to drive a modern economy. This expanding economy helps to create jobs and raise incomes but also enables people to borrow more. As interest rates and inflation creep up, the rising cost of living will squeeze the budgets of borrowers further. The mass of borrowing now accumulated in the US and UK will become less and less sustainable over time. Less available money can easily lead to a slowing in consumer spending and of the economy overall. Thus, while unsecured debt gives us many of the things we crave in modern life, it will also have the power to take these things away in the future. For more information, please visit:
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