Unsecured bonds, known as debentures, are issued without any security to back them. Investors purchase unsecured bonds based on the creditworthiness of the issuing company.

By contrast, some bonds are secured by the borrower’s collateral or specified assets. These secured bonds are often referred to as mortgage bonds.

Frequently Asked Questions

What are secured bonds?

Secured bonds are similar to mortgages. They are backed by the company's assets which are usually pledged to cover debt repayment in case of business failure. If the company becomes insolvent, secured bondholders have first priority at recovering their investment through liquidation or sale of collateral.

What are unsecured bonds?

Unsecured bonds are issued without any collateral or security. Their repayment is based on the ability of the issuer to generate revenue and pay interest on schedule.

What is the difference between unsecured and secured bonds?

Secured bonds are backed by specific collateral which reduces the risk for investors. Unsecured bonds are backed by the creditworthiness of the issuer.

How do you determine the difference between unsecured and secured bonds?

Unsecured bonds rely on the creditworthiness of issuing company while secured bonds rely on assets pledged to cover debt repayment in case of business failure.

What type of bond is more common?

An unsecured bond is more common than a secured bond since there is no need for any collateral.

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