The term unsecured loan relates to a loan which is not secured on any physical asset or other legal entity.

To understand the term unsecured loan we will first look at the opposite, the secured loan:

Many loans can be secured on physical items or other assets such as intellectual property rights. The idea is that if the asset is worth something on the open market then it can be repossessed from the borrower and so taken as payment for the loan if the borrower defaults on the loan repayment.

Many businesses take out loans financed on their fixed assets including buildings and machinery. Today the most common asset for a consumer to use as collateral for a secured loan is their home. These types of loans are commonly referred to as secured loans and it has given rise to a big industry that is cashing in on releasing the equity in peoples homes to finance their wants, desires and debts.

Property prices normally rise over time and many western countries have seen a boom in property prices as populations increase and as their countries economy increases. This mean that a house bought for $100,000 in one year may be worth $200,000 in 6 years time and so people have spare cash locked into their property. Many people have bought their home as it is where they want to be and don