An unsecured personal loan is a loan whereby the borrower does not have to provide an asset as security to a loan company. This is in stark contrast to the secured loan alternative which requires the borrower to pledge an asset (e.g. a car or property) as collateral for the loan which then becomes a secured debt owed to the creditor.

With an unsecured personal loan however, the element of risk is decreased on the borrower's part as the lender would not be able to take an asset in the event of a missed payment. Because of this, the lender will often be taking more of a chance and as a result the terms of the loan will reflect the high risk nature. Generally, lenders will allow lesser amounts to be borrowed at a higher rate of interest than most secured loans, which is why it is vital to shop around for the best deal with the lowest interest rate as many of the deals can be extortionate to say the least. The interest you pay will depend on your credit rating and will also be affected by how you've handled past finances and how you've repaid any money owed previously. Scenarios that typically lower credit ratings include; making late payments, defaulting on a loan or having a CCJ against you.

Despite an unsecured loan not requiring any asset as security, it is paramount that you still keep on top of repayments as, regardless of whether you have an unsecured or secured loan, court proceedings could still be brought as a result of missed payments.

Despite a few of the downsides there are also many benefits to an unsecured loan option that means if people play their cards right, they could actually reap the rewards of the loan.

With an unsecured loan you can choose to repay your loan quickly if you so wish, meaning you'll pay more each month but less in the long run. Also, because the loans aren't secured against a property, they are available to people who don't own a home as well as homeowners who don't want a secured loan, meaning people with differing circumstances are all eligible.

As with any loan, always make sure you know the ins and outs before you make any decision. If you have a clear focus and plan with regards to income and expenditure and are confident you can afford the loan repayments, there is no reason why you shouldn't opt for a loan. If you are unsure however, it is always best to seek advice and speak to someone before making a choice that you could live to regret.