A personal loan is an unsecured loan typically from $1,000 – $100,000 with fixed or variable interest rates that can be used to make a large purchase or to consolidate debt.
The term “unsecured” means that there is no underlying collateral attached to the loan. For example, if you borrow a mortgage for your house, your mortgage is a “secured” loan in which your home is the collateral. If you default on your mortgage, your lender will then own your home.
Since a personal loan is unsecured, there is no underlying collateral attached to a personal loan. As a result, the interest rate on an unsecured loan such as a personal loan is higher than the interest rate on a secured loan such as a mortgage because the lender is assuming more risk.
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