Unsecured Personal Loans
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Unsecured personal loans are a necessity, for those with a poor or untested credit rating. Sometimes, the only way to find business funding, for a new untried business, is through unsecured personal loans.
In finance, unsecured debt refers to any type of debt or general obligation that is not collateralized by a lien on specific assets of the borrower in the case of a bankruptcy or liquidation or failure to meet the terms for repayment.
In the event of the bankruptcy of the borrower, the unsecured creditors will have a general claim on the assets of the borrower after the specific pledged assets have been assigned to the secured creditors. The unsecured creditors will usually realize a smaller proportion of their claims than the secured creditors.
In some legal systems, unsecured creditors who are also indebted to the insolvent debtor are able (and in some jurisdictions, required) to set-off the debts, which actually puts the unsecured creditor with a matured liability to the debtor in a pre-preferential position.
Under risk-based pricing, creditors tend to demand extremely high interest rates as a condition of extending unsecured debt. The maximum loss on a properly collateralized loan is the difference between the fair market value of the collateral and the outstanding debt. Thus, in the context of secured lending, the use of collateral reduces the size of the "bet" taken by the creditor on the debtor's creditworthiness. Without collateral, the creditor stands to lose the entire sum outstanding at the point of default, and must boost the interest rate to price in that risk. Where high interest rates are considered usurious, unsecured loans are either not made at all, or are made by loan sharks unafraid of the law.
See also[edit]
High-yield debt
Guarantor loan
Medical debt
Merchant Cash Advance
Peer-to-peer lending
Term deposit
References[edit]
[hide] v t e
Consumer debt
Alternative financial services Financial literacy
Unsecured debt
Credit card debt (cash advance) Overdraft Payday loan Personal loan/Signature loan Moneylender Microcredit
Secured debt
Mortgage loan/Home equity loan/Home equity line of credit Remortgage Car title loan/Logbook loan Tax refund anticipation loan Pawnbroker
Debt management
Debt consolidation Credit counseling/Debt management plan/Debt settlement Personal bankruptcy Foreclosure/Repossession Debt Support Trust
Key concepts
Annual percentage rate (APR) Effective annual rate (EAR) Credit history
personal loans
bad credit loans
loans for bad credit
