What is an Unsecured Loan?

Unsecured Loans have lots of synonyms like: character loan, good faith loan or even signature loan. The main characteristic of this loan is that the borrower doesn’t sign up anything as collateral, even if the customer defaults on his payment the credit can’t take any personal asset from him. For someone to take an unsecured loan is to have a good credit history and of course a high credit score.

The disadvantage of this loan is that usually the interest rate is higher the the secured ones. Whenever you take out an unsecured loan the only insurance that you make to the creditor is your word or your signature. The creditor takes a big risk granting you this loan and this is the cause why the interest rate is way higher then the secured ones.

In the case of the secured one you have to put up something for collateral like a house or a car and if you default on your payment then the bank can seize your collateral so it can sell it and recover it’s loss.