An unsecured loan is a financial instrument where there is no collateral for the lender to have for security in case of default from the borrower.
Most loans that you get from friends or family where there is no collateral is an unsecured loan. This type of loan should be treated with the most care because a default by the borrower could damage the relationship and could damage somebody else’s financial situation.
Credit cards are another form of unsecured loan, basically the credit card company has no collateral to repossess in the event of default by the borrower (unless it is a big purchase, such as appliances) so they just lose all the money that was borrowed.
A student loan is an unsecured loan, because it doesn’t require any collateral to get and once the borrower has the education in their head the lender can’t take it from them.
Signature loan is a financial instrument that is just based on the borrower’s signature, meaning they have such good credit that the banks will loan them money just for signing the contract.
Just because a financial institution, friend or family member trusted the borrower enough to give them an unsecured loan doesn’t mean that it should be treated any different than a secured loan. The borrower signed a binding contract to the lender, promising to repay the loan according to the terms and that is what the borrower needs to do.
Unpaid debt can cause many problems for the borrower, the lender and the economy, so all credit given to the borrower, secured or unsecured should be treated how they would like to be treated if they were the lender for someone else.
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