what is an unsecured loan?

Answer 1

An unsecured loan is a type of loan that is not backed by collateral. Unlike secured loans, which require the borrower to offer an asset (such as a house or car) to guarantee the loan, unsecured loans are based on the borrower's creditworthiness and ability to repay. Because they carry more risk for lenders, unsecured loans typically have higher interest rates than secured loans.

Common examples of unsecured loans include:

1. Personal Loans: These can be used for a variety of purposes, such as debt consolidation, home improvements, or unexpected expenses.
2. Credit Cards: When you carry a balance on your credit card, you are essentially using an unsecured line of credit.
3. Student Loans: Many student loans are unsecured, meaning they do not require collateral but are based on the borrower's promise to repay.

Since there is no collateral involved, lenders may conduct thorough credit checks and assess the borrower's income and debt levels to determine eligibility and lending terms. If a borrower defaults on an unsecured loan, the lender cannot seize property but may take legal action to recover the owed amount.

Answer 2

a debt whose repayment is guaranteed by a pledge of something of value or a guarntor
a payday loan
a mortgage
a car lease

Answer 3

The description "a debt whose repayment is guaranteed by a pledge of something of value or a guarantor" fits the definition of a secured loan. Among the options you provided:

• A payday loan is typically unsecured and involves borrowing a small amount against future income.
• A mortgage is a secured loan where the property being purchased serves as collateral. If the borrower fails to repay, the lender can take possession of the property through foreclosure.
• A car lease is more of a rental agreement rather than a typical loan, but it often requires the vehicle to serve as collateral in the case of a conditional sale.

Thus, the most fitting example of a debt with a pledge of something of value from your list is a mortgage, as it involves borrowing money with the property securing the loan.