Management Glossary

  Search Results: unsecured loan
unsecured loan

A loan for which no collateral is pledged.

If the borrower goes bankrupt or refuses to pay back the loan as stipulated in the loan agreement, the lender has no specific claim to any of the individual's assets. In the event that the borrower refuse to pay, the lender can go to court and seek payment out of the borrower's general assets. In the event of bankruptcy, the lender must join the queue of other unsecured creditors. The order in which creditors are paid  and how large a percentage of the debt will be paid if there are insufficient funds to pay it all after a bankruptcy depends on the country, state or province that has jurisdiction over the bankruptcy proceedings. In contrast, a lender that issued a secured loan can get a court order to seize the pledged collateral before any unsecured creditors are paid.

Contributed by: collateral^asset^bankrupt

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