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Unsecured Loans - Definition of Unsecured Loans


Definition: Unsecured loans are not attached to any collateral. They're 'unsecured' loans because the bank has nothing to go after if you default. They can't sell your house like they could with a mortgage, for example. Because they're just taking your word for it, you have to have decent credit to get an unsecured loan.

Unsecured loans are sometimes called 'signature loans' because the bank has nothing but your signature -- they can't take possession of your house, car, or other belongings. However, they can report you to the credit reporting companies and ding up your credit.

For people who don't have any collateral to pledge, an unsecured loan can be attractive. Be aware that there is more risk to the bank, so the interest rates on unsecured loans are typically higher.

Peer to peer lending has made it easier to get unsecured loans at a reasonable rate.

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