borrowing that is not secured by a mortgage on a specific property. It is backed only by the borrower's credit rating. Unsecured loans are typically short term. The disadvantages of this kind of loan are that, because it is made for the short term and has no collateral, it carries a higher interest rate than a secured loan, and payment in a lump sum is required.
loan granted on the strength of the borrower's credit history or reputation in the community, earnings potential, and other assets owned, even if unpledged, rather than a pledge of assets as collateral. Assignment of collateral, as in a mortgage, is not required. The borrower signs a promissory note stating the terms and conditions under which the loan will be repaid. The lender may ask a co-maker or guarantor to sign the note, pledging to repay the loan if the borrower defaults. Also called a character loan or good faith loan.
loan without collateral.
a debt that has no collateral or security.
Example: When Sam needed some cash to make repairs to his house, he went to the bank and got a small unsecured loan by signing a loan agreement and letting the bank check his credit report. The bank could not place a mortgage lien on his house.
