Unsecured Creditor

DEFINITION of 'Unsecured Creditor'

An individual or institution that lends money without obtaining specified assets as collateral. This poses a higher risk to the creditor because it will have nothing to fall back on should the borrower default on the loan. A debenture holder is an unsecured creditor.

BREAKING DOWN 'Unsecured Creditor'

It's uncommon for individuals to be able to borrow money without collateral. For example, when you take out a mortgage, a bank will always hold your house as collateral for the loan in case you default. One exception is large corporations, which often issue commercial paper that is unsecured.