A credit that is not secured by any sort of collateral (security). It includes all types of unsecured/ uncollateralized lending facilities extended by a market participant to another over the course of a certain period of time, and according to pre-agreed contractual terms. Examples of unsecured credit include unsecured line of credit and unsecured credit cards.

Unsecured credit always bears higher interest rates because it is riskier than secured credit in which the collateral serves as a guarantee for repayment.

A prime example of unsecured credit is an unsecured loan– a loan that is not guaranteed by any specific type of property/ assets. The creditor receives no collateral as an assurance for repayment and therefore runs the risk of default by the borrower without having at hand a specific source to recourse to.

Generally speaking, unsecured debt is associated with higher interest rates than secured debt due to the lack of security for the lender. Some lenders examine the credit history of borrowers and their ability to pay instead of asking for collateral.