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An unsecured loan is a debt obligation which does not use your property as security for the loan unlike a mortgage or a secured loan where your house is used as collateral.
These loans also differ from secured loans by the fact that they in theory provide less risk to the person taking out the loan due to the fact that their house is not used as insurance on their payments. This is true so long as you don't default on your payments. If the payments are no made you could have court proceedings taken against you and your home.
This could in effect result in the loss of your home, turning what was an unsecured loan into a secured loan. For this reason you need to be extra careful to ensure that you keep up the payments on these loans. Loan companies will often act aggresively on payment defaulties.
A good credit rating and credit history are very important if you are looking for an unsecured loan. A good credit rating is perhaps the most important factor in determining the success of your loan application due to the fact that you are not legally providing your house as collateral.
Loan companies need to see that you are a responsible citizen able to repay your debts. This is done in the form of a credit check where the loan company will see what is known as your credit score and thus your credit rating. This rating is based on many variables such as employment history, existing debts, how long you have taken to repay your bills in your lifetime and much more.
Since unsecured loans are more difficult to get you will have to show a very good credit rating to be successful in your loan application.
You will pay higher interest rates with these loans than you will with secured loans. This again is due to the increased risk to the loan company.
A loan application for an unsecured loan will be processed more quickly than for a secured loan. You will receive a reply and answer swiftly to your application and there is no risk or obligation on your part even after you subimt the application.
Additional Unsecured Loan Resources: