What is an unsecured loan?

An unsecured loan is a type of loan that is not backed by any specific asset or collateral. This means that the lender provides the loan based on the borrower's creditworthiness, income, and ability to repay rather than securing the loan with a physical asset like a car or house. Because there is no collateral, unsecured loans typically come with higher interest rates than secured loans, reflecting the increased risk taken on by the lender.

In terms of other options, a loan with collateral backing clearly describes a secured loan, where the lender has a claim to a specific asset if the borrower defaults. A loan that requires a cosigner may still be secured or unsecured depending on the specific terms and the availability of collateral. A loan with government guarantees typically refers to certain types of loans that benefit from government backing, which can apply to both secured and unsecured loans but does not define what an unsecured loan is.