An unsecured loan is when a lender gives you money on the account that you pay your monthly repayments. You do not have to place down any collateral to take out the loan. The lender assesses your credit history which basically is a scoring system indicating whether you are a good borrower or not. This is determined by bills being paid on time, whether they are paid in full etc.

The main difference between the two is that for a secured loan you must be a home owner or have something which you can place down as collateral in case you stop or do not meet payments. The lender has the right to take what they are owed by reposing the items left as collateral.

With an unsecured loan there is no collateral, there is an agreement between the lender and the borrower that payments would be made and on time. In many cases the amount that is allowed to be borrowed is much lower than a secured loan.

The interest rates for an unsecured loan are much higher because the lender has nothing to reclaim if the borrower decides to stop their repayments. This is something which can only be settled through other means e.g. court.