Definition of Unsecured Loan
What is an "unsecured loan"? What is the definition of the term "unsecured loan"?
An "unsecured loan" is a loan in which there is no collateral.
For instance - a mortgage is a "secured loan", as you are pledging your house as collateral. If you default on your payments, your lender will likely repossess your home and sell it to recoup their money.
![Definition of Unsecured Loan - Financial Dictionary - Mortgages - Illustration](https://www.davemanuel.com/images/def_unsecured_loan.gif)
For instance - a credit card is an "unsecured loan". If you default on your payments, the credit card company will be forced to use a collection agency or the court system in order to retrieve their money.
Other examples of unsecured loans include loans from friends or department store cards.
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Unsecured loans carry a much higher level of risk for lenders, due to the fact that there is no collateral. For this reason, unsecured loans have much higher interest rates for borrowers.
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