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 debt whose repayment is guaranteed by a pledge of something of value or a guarantor a payday loan a payday loan a mortgage a mortgage a car lease
A debt whose repayment is guaranteed by a pledge of something of value or a guarantor
An unsecured loan is a type of debt that does not require any collateral or security for approval. In this type of loan, the borrower does not need to pledge any asset, such as a house or car, as collateral to obtain the loan. Since there is no collateral involved, unsecured loans typically have higher interest rates compared to secured loans.
To understand what an unsecured loan is, it is important to differentiate it from a secured loan. In a secured loan, the borrower pledges an asset as collateral, which acts as a guarantee that the lender can seize if the borrower fails to repay the loan. This collateral reduces the risk to the lender, resulting in lower interest rates.
On the other hand, in an unsecured loan, there is no collateral involved. The lender relies solely on the borrower's creditworthiness and ability to repay the loan. To mitigate this increased risk, lenders may assess the borrower's credit history, income, employment stability, and other factors.
Some common examples of unsecured loans include personal loans, credit card debt, student loans, and medical bills. These loans are typically based on the borrower's credit score and income level. It is important to note that while unsecured loans may not require collateral, failure to repay them can still have serious consequences, such as damage to one's credit score and potential legal actions by the lender.