What are unsecured personal loans?
Unsecured loans are personal loans where you don't have to provide the lender with any security, or collateral. That makes them different to secured loans, which are personal loans where you do need to provide security, such as property or a car.
If you default on a secured loan, the lender can seize your collateral, sell it and then use the sale proceeds to repay the loan. If you default on an unsecured loan, the lender will be unable to automatically seize one of your assets
Don't assume, though, that defaulting on an unsecured personal loan doesn't have consequences or that your debt will magically disappears. The lender might pursue legal action and the court might then order the forced sale of one of your assets. You might also be forced into bankruptcy.
Why do people use unsecured personal loans?
Unsecured personal loans generally have higher interest rates than secured personal loans. So why, then, do people choose them? One reason is that they're unable to provide adequate security – perhaps because they don't own any valuable assets or because those assets have been used to support other loans.
Other borrowers, though, are able to provide adequate security for a personal loan, but are just unwilling. One reason might be that they don 't want to risk their assets; another might be that they want to use those assets to support other loans.
Before pursuing an unsecured personal loan, it could be worth doing an online credit check to make sure your credit score would qualify you for a loan. Lenders are usually willing to consider unsecured loans, but are likely to ask for evidence that you will be able to repay the money loaned to the term agreed between you.