An unsecured loan is a type of borrowing that does not require the borrower to provide collateral, such as a house or car. Instead, lenders evaluate the borrower's creditworthiness based on their credit history, income, and other financial factors. Because there is no collateral, these loans typically come with higher interest rates compared to secured loans. Common examples of unsecured loans include personal loans, credit cards, and student loans. If a borrower fails to repay an unsecured loan, the lender cannot claim any specific asset but may take legal action or report the default to credit bureaus, which can negatively impact the borrower's credit score.