Unsecured loan
An unsecured loan is a loan that depends entirely on the credit rating of the debtor who has not posted collateral. Unsecured loans can be term loans or revolving loans.[1] Because the loan is not backed by collateral posted by the debtor, the debtor will pay a higher interest rate which represents the risky nature of the loan.[2]
Unsecured Default
Unlike a secured loan where the lender can seize the posted collateral to recover their money if the debt is not repaid, an unsecured lender cannot. An unsecured lender can hire a collection agency to collect the payment or in certain cases, the lender can take the debtor to court to recover the money owed.[3] Collection agencies are very common with credit card debt.
Common Unsecured Loans[3]
- Student loans
- Credit cards
- Personal loans (such as those from a cash advance or payday lender)
See Also
References
- ↑ J.Black, N. Hashimzade, and G. Myles. (2009) "Unsecured Loan." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-3263?rskey=ht6uyj&result=3, 2009 [Aug 20, 2016]
- ↑ R. A. Brealey et al. Fundamentals of Corporate Finance. Toronto: McGraw-Hill Ryerson, 2012, pp. 656.
- ↑ 3.0 3.1 Investopedia. "Unsecured Loan." [Online], Available: http://www.investopedia.com/terms/u/unsecuredloan.asp?ad=dirN&qo=investopediaSiteSearch&qsrc=0&o=40186 [Aug 21, 2016].