Which of the following best describes an unsecured loan?

Which of the following best describes an unsecured loan?

• A. A loan backed by physical assets
• B. A loan that requires a co-signer for approval
• C. A loan not backed by collateral
• D. A loan given only to business entities

Answer: (C)

An unsecured loan is inherently defined as a type of loan that does not require any collateral to secure it. This means that the lender provides funds based on the borrower's creditworthiness, income, and repayment ability rather than securing the loan with physical assets such as property or vehicles. Since there is no collateral involved, the risk for the lender is higher, which is often reflected in the interest rates charged on these loans. Borrowers of unsecured loans are typically individuals seeking personal loans, credit cards, or student loans, where the agreement relies solely on the borrower's promise to repay. This distinguishes unsecured loans from secured loans, which are tied to specific assets that the lender can claim if the borrower defaults.

An unsecured loan is inherently defined as a type of loan that does not require any collateral to secure it. This means that the lender provides funds based on the borrower's creditworthiness, income, and repayment ability rather than securing the loan with physical assets such as property or vehicles. Since there is no collateral involved, the risk for the lender is higher, which is often reflected in the interest rates charged on these loans. Borrowers of unsecured loans are typically individuals seeking personal loans, credit cards, or student loans, where the agreement relies solely on the borrower's promise to repay. This distinguishes unsecured loans from secured loans, which are tied to specific assets that the lender can claim if the borrower defaults.