Unsecured loan

An unsecured loan is debt for which the lender does not require the borrower to provide collateral. This type of loan places the lender at risk of losing the entire amount of its loan if the lender defaults. Instead, the lender is relying upon the creditworthiness of the borrower to obtain repayment of the loan. This situation most commonly arises when the borrower is a well-established business with robust profits, or an individual with a large income. These loans are also issued to lower-quality customers at a high interest rate, so that the lender's increased risk is offset by a higher possibility of profit.