A loan which is backed only by the promise of the borrower to repay the money rather than a physical asset. If the individual or company defaults on their repayments, creditors do not usually have a claim to their possessions. However, they can use debt collection agencies and other means to recover their money. Generally, individuals and companies must have a strong credit rating to qualify for unsecured loans although bad credit loans consider individuals with a weak credit rating. As unsecured loans are considered higher risk, the creditor will charge a higher rate of interest and offer less flexible terms than for a secured loan. These are also called a signature loan.
This definition is for general information purposes only