Private or Consumer Debt Guide
Private debt as a transaction between two individuals has been around for a long time, but like public debt, it did not become a widespread phenomenon until the advent of public banking. Private debts can either be unsecured, in which case the ability to secure a loan will depend upon the creditworthiness of the individual; or they can be secured loans, where another asset owned by the borrower is used as security for the loan. Real property such as houses, land, and business assets are the most common forms of security. Secured loans tend to be offered at lower interest rates than unsecured loans, and interest rates also rise as the credit worthiness, determined by previous credit history, of an individual declines.
Historically, personal debt has been viewed by many societies as immoral, but modern economic perspectives often see consumer debt as beneficial to the economy as it increases domestic production and enhances economic growth. Governments may even encourage debt through tax relief for certain types of interest payments, if the loans are used in ways that encourage consumption of domestic products (for example mortgage interest relief in the United States).
The most common forms of secured personal debt are mortgages. However, there has been a large increase in unsecured personal debt in most developed countries over the past few decades, and the rising use of credit cards, payday loans, tax rebate loans, and consumer financing has led to record levels of private debt in many developed countries.