Sunday, November 14, 2010

Unsecured Loans

Contrary to secured loans, unsecured loans do not have collateral to secure the loan amount.  Unsecured loans are considered higher risk because of the borrower defaults on the loan, the lender can only send the account to collections and not be able to seize any property to recoup the losses.

The credit card is the most common example of the unsecured loan.  Unsecured loans are primarily underwritten with credit score, credit history, and income level as criteria to qualify.  Unsecured loans are different from secured loans because the higher risk in an unsecured loan usually means a high interest rate, usually 20% and up.