Unsecured Loan

AAA

DEFINITION of 'Unsecured Loan'

A loan that is issued and supported only by the borrower's creditworthiness, rather than by a type of collateral. An unsecured loan is one that is obtained without the use of property as collateral for the loan. Borrowers generally must have high credit ratings to be approved for an unsecured loan.


Also called signature loans and personal loans.

INVESTOPEDIA EXPLAINS 'Unsecured Loan'

Because an unsecured loan is not guaranteed by any type of property, these loans are bigger risks for lenders and, as such, typically have higher interest rates than secured loans (such as a mortgage). Although the interest rates are higher, the rates may still be lower than those of credit cards. Unlike mortgage loans, the interest on an unsecured loan is not tax deductible.


An unsecured loan may be a good option for individuals who do not have enough equity in their homes to be approved for a home equity loan. An unsecured loan may have a fixed interest rate and be due at the end of a specified term, or it can exist as a revolving line of credit with a variable interest rate.

RELATED TERMS
  1. Character Loan

    A character loan is a type of unsecured loan that is made on ...
  2. Belt And Suspenders

    A term used to mean conservatism and safety in lending practices. ...
  3. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  4. Loan

    The act of giving money, property or other material goods to ...
  5. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, ...
  6. Advance Rate

    The maximum percentage of the value of a collateral that a lender ...
RELATED FAQS
  1. What are the different types of letters of credit?

    Learn more about the different types of letters of credit that are used to facilitate exchanges between parties that might ...
  2. How can I consolidate my unsecured debt?

    Discover some of the different ways that you can combine your present unsecured debts into a consolidation loan -- even by ...
  3. What are the drawbacks to debt consolidation?

    Learn more about the potential drawbacks and disadvantages of combining your debts into a single consolidation loan, even ...
Related Articles
  1. Retirement

    Borrowing From Your Retirement Plan

    Left with no alternative but to take money out from your retirement savings? Here are some guidelines.
  2. Fundamental Analysis

    Analyzing A Bank's Financial Statements

    A careful review of a bank's financial statements can help you identify key factors in a potential investment.
  3. Credit & Loans

    The Importance Of Your Credit Rating

    A great starting point for learning what a credit score is, how it is calculated and why it is so important.
  4. Credit & Loans

    Digging Out Of Personal Debt

    Find out why good intentions can put consumers in an even bigger hole than before.
  5. Retirement

    Getting A Loan Without Your Parents

    Use the 5 "W"s to finance your dreams without banking on a second signature.
  6. Options & Futures

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
  7. Personal Finance

    How Basel 1 Affected Banks

    This 1988 agreement sought to decrease the potential for bankruptcy among major international banks.
  8. Home & Auto

    Key Home Upgrades That Make Or Break The Deal

    When making a home purchase, pay attention to key features of the home that either should meet a certain standard or should be upgraded by the seller.
  9. Trading Strategies

    Eyeing a Loan? Consider Skipping the Banks

    Peer-to-peer lending platforms, such as Lending Tree, Lending Club and Prosper, offer borrowers newfound leverage. Here's a look.
  10. Personal Finance

    What's a Commercial Bank?

    A commercial bank is a type of financial institution that accepts deposits, offers checking account services, makes business, personal and mortgage loans; and offers basic financial products ...

You May Also Like

Hot Definitions
  1. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  2. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  3. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  4. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  5. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  6. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
Trading Center