An unsecured loan is a loan that is not backed by collateral. The lender relies on the customer's income, ability to repay, and overall profile instead of a pledged asset.
An unsecured loan is extended without a pledged asset, so there is no specific property the lender can claim if the loan is not repaid. Instead, the lender evaluates factors such as income, ability to repay, and credit or application history. Because no asset is attached, an unsecured loan does not by itself create a lien on a home or allow repossession of a car. Signature loans, most credit cards, and many personal loans are unsecured, while mortgages, auto loans, and title loans are secured. If an unsecured loan is not repaid, the lender's remedies generally involve collection activity and reporting rather than seizing collateral.
