When shopping for loans borrowers will often see the terms “secured” and “unsecured” used to describe a loan. So, what is an unsecured loan?
Unsecured loans are loans provided by a lender to a borrower, without an asset used as collateral to protect the borrower against missed repayments or defaults. For example, a secured loan is called such as it is secured against a car or the borrower’s home. If a repayment is missed or the account defaults, the asset used to secure the loan is seized and sold as a means of repaying the loan. As there is no such asset used in this case, the loan is an unsecured one.
Due to their nature, the funds available from unsecured loans are generally lower than with a secured loan, and the interest rate higher, as there is a greater degree of risk attached to an unsecured loan.
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