What Is Partial Secured Debt?

A partially secured debt is a debt that offers some form of collateral as partial security for the repayment of the debt. Collateral can be any item of value that the lender can sell or use to satisfy the outstanding debt. However, the debt is said to be partially secured because the value of the collateral is less than the amount of the outstanding debt. In contrast, a secured debt is a loan or indebtedness that is completely satisfied by an item of value that is at least equal to the amount of the debt.

An Example of Partially Secured Debt

An example of a partially secured debt is a car loan. A car's value decreases over time and as more miles are added to the car. Therefore, a car is unlikely to retain its value for very long. For instance, you take out a car loan for $15,000. However, now the car is only worth $10,000. The collateral, the car, does not fully satisfy a $15,000 outstanding debt on a loan. The lender will be able to sell the car and satisfy part of the payment on the loan, but will suffer some loss from the loan. The ability to acquire the item of value makes the debt secure for the lender.

Why It Matters

It is important to understand the benefits and risks of a partially secured debt. Lending institutions will offer loans with a lower interest rate for debts that are partially secured. The interest rate on these partially secured loans is lower than unsecured loans because the lender essentially has a lien on the collateral, and can turn around and sell it to recoup some of their losses if you miss payments. In other words, by offering the loan the lender has purchased your collateral. However, if your loan is partially secured with some form of collateral, the lender will keep the collateral the debt is secured on, but will not come after your other assets. If you default on a car loan partially secured by the car, the lender will not come after your house to satisfy the debt.

Getting Legal Help

Contact a licensed attorney in your area if you have questions about the characteristics of your debt, or if you are thinking about consolidating your debt. Only a licensed attorney can explain your legal options to you.