An unsecured loan is a type of loan that doesn’t require collateral, such as a house or car, to back the borrowed amount. Approval for this type of loan is typically based on the borrower’s creditworthiness, income, and financial stability. Since there’s no asset tied to the loan, lenders may charge higher interest rates to offset the higher risk involved. Common examples of unsecured loans that you may know include personal loans, credit cards, and student loans. Remember, if the borrower defaults, the lender cannot seize the property but can take legal action.