A personal loan that is not backed by collateral, unlike a mortgage or secured loan, which are backed by the house which is mortgaged. A personal loan is not secured against a house or other collateral, which means that the bank cannot repossess a house in the event of default. As there is no collateral to back the loan, the bank will carefully check the lender’s creditworthiness and ability to repay the loan before granting the loan facility.

From the borrower’s point of view, an unsecured personal loan is more attractive than a secured loan, as their home cannot be claimed by the bank. However, as this type of loan is slightly more risky for the bank, a higher interest rate than those offered on secured loans is normally charged.