An unsecured loan is a loan where there is no physical collateral. This means that there is nothing worthy for the bank to take if the loan isn’t paid off. This type of loan is differs from a secured loan because it is approved without the use of property as collateral for the loan. Usually these borrowers must have near-perfect credit ratings to qualify.
The interest on an unsecured loan, also called a signature loan and a personal loan, is not tax deductible, unlike mortgage loans. An unsecured loan is not guaranteed by any type of property, so these loans are a bigger risk for lenders and usually have higher interest than a secured loan. Even though the interest rates are high, they may still be lower than rates on other accounts such as credit cards.
Unsecured loans may also be a good option for borrowers that do not have enough equity in their homes to be accepted for a home equity loan. These loans may have fixed interest rates that are due at the end of a specific term, it can also exist as a revolving credit with a rate that fluctuates over time. An unsecured loan may also be referred to as a character loan or a good faith loan.
Some Examples of Unsecured Loans That May be Available are:
-Personal Lines of Credit
-Home Improvement Loans