Finance glossary
Unsecured Loan
Also known as: Personal loan
In simple terms
An unsecured loan is borrowing that is not tied to any asset. The lender relies on your promise to repay and your credit history, not on being able to take your home or car.
On this page
What does unsecured loan mean?
An unsecured loan — often just called a personal loan — is not backed by any security. Credit cards, overdrafts and most personal loans are unsecured. The lender decides whether to lend based mainly on your credit history and affordability.
Because there is no asset to fall back on, amounts are usually smaller and rates can be higher than secured borrowing.
How an unsecured loan works
You borrow a set amount and repay it with interest over a fixed term, usually in equal monthly instalments. The rate you are offered depends on your creditworthiness and the amount and term.
If you do not repay, the lender cannot simply seize an asset — but it can add charges, register a default, pass the debt to collectors and take court action, which may end in a CCJ.
How could this affect me?
Unsecured borrowing does not put a specific asset at direct risk, but defaults still damage your credit file and can lead to court action. A better credit history usually means a lower rate.
For mid-sized, shorter-term needs, an unsecured loan is often simpler and safer than securing debt against your home.
Things to watch out for
- The advertised representative APR may not be the rate you are actually offered.
- Missing payments still leads to defaults, charges and possible court action.
- Early repayment charges may apply on some loans.
Know your rights
- Most unsecured consumer loans are regulated by the Consumer Credit Act 1974 and FCA rules.
- You are entitled to pre-contract information and normally a 14-day right to withdraw.
- You can usually repay early and only pay interest up to settlement (a small charge may apply).
General information, not personal advice
Consumer Credit is an independent information service. We do not provide regulated financial advice or sell financial products. For advice on your own situation, speak to an appropriately authorised firm or a free service such as MoneyHelper. About Consumer Credit.
Sources
We checked this page against these official and authoritative sources.
- MoneyHelper, Personal loans (opens in a new tab). Accessed 22 Aug 2026.