24 Hour Loans glossary of financial terms

Unsecured Loan

An unsecured loan is a loan that is given without the guarantee of security behind it. With this kind of loan you do not need to use your house or other property/assets as collateral to guarantee that your loan will be repaid.

This kind of loan represents a higher risk to lenders. If you use security to get a loan, then the lender will know that they can use this security if you ever stop paying them back. So, for example, if you use your home as security but default (stop paying) on your loan repayments, then they can have your home repossessed to recover their money. They don?t have this guarantee if you take out an unsecured loan so you are automatically seen as a higher lending risk. This means that unsecured loans will be charged at higher interest rates than secured loans to compensate for the added risk they represent to a lender. They are often, however, the only loan available to consumers that don?t own their own homes or don?t have suitable assets to use as security such as tenants etc.