What is an unsecured loan?

An unsecured loan is a loan that can be obtained without collateral. This means that they are not secured against property or any assets. For this kind of loan a person agrees to repay the loan within a set term and signs a document to attest the agreement. It is also known as a signature loan or a personal loan.
Unsecured loans may be of two types for financial institutional purposes or for personal purposes. The first one is made trough a company that lends you money and is based only on your credit rating and your income. This kind of loan represents a high risk for the lender that is why it is harder to obtain. For a lender to grand an unsecured loan you have a very good credit score. The second one refers to a personal loan from a friend or from family. In this case an I.O.U. is used as a signature of agreement to pay back the loan. This way your credit score is not affected but that doesn’t mean there are no risks. Such a loan can lead to small claims in court.
Falling in the first category, unsecured business loans can be of several types. One of them is the purchase made on a credit card. When a credit card purchase is made a form is signed by the purchaser trough which the payment is authorized and it stands as an agreement to pay back the money borrowed. If the money is not paid back in due time the lender may ask for additional fees, the account may be sent to collections and legal measures can be taken against the borrower.
Other unsecured loans can be offered by banks, like in the case of credit card companies your credit worthiness is assessed to establish how likely you are to pay back the loan. Most often they are for small amounts of money.

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