An unsecured loan is a type of loan that does not require any collateral or guarantee. Unlike secured loans, where the borrower pledges an asset (such as a car, house, or savings account) as security for the loan, unsecured loans are not backed by any specific asset.
In an unsecured loan, the lender relies solely on the borrower's creditworthiness and ability to repay the loan. Therefore, if the borrower defaults on the loan, the lender has no direct claim to any specific property. As a result, unsecured loans generally carry higher interest rates compared to secured loans, as the lender bears a higher risk.
Examples of unsecured loans include personal loans, credit card debt, and student loans.
What is an unsecured loan?
• A debt whose repayment is guaranteed by a pledge of something of value or a guarantor.
• A payday loan
• A mortgage
• A car lease
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