An unsecured loan is one which is not backed by any collateral such as credit card loans. On the other hand, a mortgage loan is a secured loan in which the property is the collateral that is provided as a safety net by the mortgagor. Any loan that is made without the threat of foreclosure on any asset belonging to the debtor falls under this category. For example if a friend lends money to one of his or her acquaintances because of good social and moral standing, such a loan is considered to be unsecured.

• Credit card loans are the most common type of unsecured loans found universally. Credit card companies provide loans (credit) based on the credit score and credit history of the borrower. Usually the amount of income or the wealth of a person is not taken into account by credit card companies while advancing these short term loans. In credit card loans the lenders rely on a person’s score in order to judge the creditworthiness and probability of default. Therefore a healthy credit score can not only help in getting better credit card deals but also in securing other types of unsecured lines of credit.
• There are three basic types of unsecured loans – a personal unsecured loan, a business unsecured loan and an unsecured business loan with a personal guarantee. The first on these is given to individuals and the second and third is given to business entities. However in the second type of business loan mentioned above, a personal guarantee may be given by a third party that a business entity will pay the amount back in time.
• The decision of lending without collateral carries a lot of risk since the debtor may get away Scot free if he or she is unable to make the payments. Therefore business professionals called actuaries are employed and scrutinize the risk posed by a particular lending contract. These professionals will take into account the credit history, credit score and other relevant factors before approving the contract. Therefore it is difficult to obtain an unsecured loan compared to a secured one in which the risk is mitigated by collateral offered against the lent amount.
• Typically, an unsecured loan is for a small amount, possibly for a one time medical fee or a holiday. When a person’s credit is excellent, shopping around for the most excellent interest rates for an unsecured loan is prudent. Often, the best rates for an unsecured loan are obtainable through credit unions. If a person has an open account with the credit union, acquiring an unsecured loan might not be a challenging task.

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