An unsecured loan is a loan that doesn't require any collateral. It is based only on the borrower's creditworthiness. So if you should default on the loan, the bank has nothing they can go after as repayment. For example they can't come and get your car like they could if you defaulted on your car loan.

Since unsecured loans are based solely on your creditworthiness, you must have decent credit to obtain one. You will often hear unsecured loans referred to as signature loans. This is because all the bank gets in exchange for the loan is your signature. If you should default all the bank can do is take it as a loss and report you to the credit bureaus which will negatively affect your credit.

If you don't have any collateral to use for a loan then an unsecured loan might be the best option for you. But please know that interest rates on unsecured loans are generally pretty high. This is because the bank is taking a big risk by giving you the loan. So in an effort to protect themselves they hike your interest rate up.

However, there are alternatives to getting an unsecured loan from a traditional bank. Thanks to the internet you can get a peer to peer unsecured loan from sites like prosper.com. With prosper.com you can avoid dealing with a bank all together and only deal with individuals. Though this might seem a little scary, its actually a great thing.

You see when you get a peer to peer unsecured loan you will end up paying way less interest. This is because people who lend on peer to peer sites are genuinely trying to help people out. They are not running a business and trying to make a profit.

Banks on the other hand have huge overhead expenses and they have to pay them somehow. So they charge unbelievable high interest rates to make money. Now I'm not saying taking out an unsecured loan from a bank is bad. Some banks offer great options that might be better then taking a loan out from a complete stranger.

So your best bet is to do proper research so you can weigh all of your options. Don't take the first offer that's put on the table. See what different lenders and banks have to offer. By taking the time to shop around, you could end up saving yourself quite a bit of money over the long term.