What is an unsecured loan? (1 point)
Responses
a debt whose repayment is guaranteed by a pledge of something of value or a guarantor
a payday loan
a mortgage
a car lease
a debt whose repayment is not guaranteed by a pledge of something of value or a guarantor, often based solely on the borrower's creditworthiness and ability to repay the loan.
An unsecured loan is a debt that does not require collateral or a guarantor to secure repayment. In other words, it is a loan that is not backed by any assets, such as a house or car. Instead, the lender relies on the borrower's creditworthiness and income to determine if they will be able to repay the loan. Common examples of unsecured loans include personal loans, credit cards, and student loans.
An unsecured loan is a type of debt where there is no collateral or asset offered as security for the repayment of the loan. In other words, it is a loan that is not guaranteed by pledging something of value or having a guarantor.
To understand this further, let's compare it to other types of loans:
1. Secured Loan: In contrast to an unsecured loan, a secured loan requires you to pledge an asset, such as a house or a car, as collateral. This collateral acts as security for the lender in case you fail to repay the loan. If you default on a secured loan, the lender can seize the collateral to recover their funds.
2. Payday Loan: A payday loan is a short-term, high-interest loan where the borrower provides a post-dated check or electronic access to their bank account as collateral. Unlike an unsecured loan, payday loans are typically due on the borrower's next payday and often have high interest rates, making them a more expensive borrowing option.
3. Mortgage: A mortgage is a loan specifically used to finance the purchase of a property, usually a home. While it is a secured loan, where the property itself acts as collateral, the focus is different from an unsecured loan. Mortgages have longer repayment periods and lower interest rates compared to unsecured loans.
4. Car Lease: A car lease is a type of agreement where you make regular payments to use a vehicle for a specific period, typically two to five years. It is not a loan, but rather a form of renting a car. While it involves financial obligations, it is different from both secured and unsecured loans.
In summary, an unsecured loan is a type of debt that does not require collateral or a guarantor as security. Therefore, the lender relies solely on the borrower's creditworthiness and income to assess the risk of repayment.