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Unsecured Loan

An unsecured loan is a type of loan that does not require the borrower to provide any collateral—such as property or other assets—to secure the loan. Instead, lenders approve these loans based on factors like the borrower's creditworthiness, income, and debt-to-income ratio.

Common examples of unsecured loans include personal loans, credit cards, and student loans. Because these loans are not backed by collateral, they pose a higher risk to lenders, which often results in higher interest rates compared to secured loans.

If a borrower defaults on an unsecured loan, the lender cannot claim specific assets but may pursue legal action or report the delinquency to credit agencies, potentially impacting the borrower's credit score.

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