Unsecured Loan
An unsecured loan is a loan that is not backed by collateral.
Approval is based on credit history, income, and overall financial profile rather than physical assets.
Why it matters
Unsecured loans typically carry higher interest rates because the lender takes on more risk without collateral.
They rely heavily on creditworthiness and repayment history to determine approval and terms.
Everyday application
Unsecured loans are commonly used for:
Credit cards
Personal loans
Student loans (in most cases)
These loans do not require an asset to be pledged, but missed payments can still significantly impact credit history.
Key takeaway
An unsecured loan does not require collateral, but often comes with higher risk-based costs and stricter approval requirements.
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