A loan that is issued and supported only by the borrower’s financial status, rather than by a type of collateral. An unsecured loan is one that is obtained without the use of property as collateral for the loan. Borrowers generally must have high credence ratings to be approved for an unsecured loan.
Because an unsecured loan is not assured by any type of property, this loan is bigger risks for lenders and, as such, mostly have higher interest rates than secured loan (such as a mortgage). Although the interest rates are higher, the rates may still be lower than those of credit cards. Unlike mortgage loan, the interest on an unsecured loan is not tax deductible.