This page provides an overview of unsecured loans. It should outline the main differences between secured and unsecured loans to give you an understanding of what unsecured loans involve.

What Are Unsecured Loans?

Unsecured loans, also known respectively as personal loans or signature loans, are debts that are not secured by some form of collateral on the part of the borrower. This means that in the event that the borrower defaults on the loan payments, the lender has no rights to any specific asset belonging to the borrower since nothing was specified as a security by the borrower.

Unsecured loans do generally come at a price for the borrower. Since the lender has no security against the loan there is a risk that the lender stands to lose out. To mitigate this risk, interest rates on unsecured loans is generally higher than secured loans.

Unsecured loans will generally be provided by lenders for smaller types of purchase such as autos, audio-visual equipment, vacations, furniture etc. You would be unlikely to raise sufficient funds from an unsecured loan to buy real estate.