unsecured

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adjective un·se·cured \ ˌən-si-ˈkyu̇rd , -ˈkyərd \
Updated on: 26 Jul 2017

Definition of unsecured

:not protected or free from danger or risk of loss :not secured
  • unsecured cargo
  • unsecured funds
  • an unsecured loan

Recent Examples of unsecured from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'unsecured.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

First Known Use of unsecured

1780


Financial Definition of UNSECURED

unsecured

What It Is

In the finance world, a lender or piece of debt is unsecured if it does not have collateral.

How It Works

Let's assume you would like to borrow $100,000 to start a business. Even if you have an excellent credit rating, a bank may be reluctant to lend you the money because it may be left with nothing if you default on the loan. Thus, although banks may attempt the lengthy and expensive process of suing you in that circumstance, the bank may require $100,000 of collateral -- security -- in order to lend you the money. This collateral might consist of financial instruments, houses, cash, or even objects such as art, jewelry or other items. You might pledge your business receivables as well. When you pledge these assets, you are collateralizing the loan.

If you do default on the loan, the loan agreement gives the lender the right to seize then sell the collateral in order to recover any outstanding balance.

For individuals, credit cards are the most common example of unsecured debt. There is no collateral backing  your Visa bill that Visa can seize if you don't pay your bill.

Why It Matters

If the creditor has claim to some of your assets -- say, a deposit you made, a lien on your house, the title to your car -- that creditor is a secured creditor. If the creditor has no ability to claim some of your assets when you don't pay (this is often the case with credit cards), the creditor is unsecured. If you have borrowed money from a bank, the bank may ask you for collateral as a way of securing the loan.

An unsecured creditor takes on more risk than a secured creditor because it does not have the ability to seize an asset right away if a borrower fails to repay the debt. Creditors may of course sue to obtain access to accounts or other assets if the borrower has not paid, but that is more expensive than requiring collateral up front. Regardless, this lack of security increases the creditor’s risk, which in turn increases the interest rates on unsecured loans.


Law Dictionary

unsecured

adjective un·se·cured \ ˌən-si-ˈkyu̇rd \

legal Definition of unsecured

:not secured: as
a :not guaranteed or protected as to payment, performance, or satisfaction by a security interest or by property given or pledged as security
  • unsecured debt
  • an unsecured claim
b :characterized by a lack of security or of a security interest
  • unsecured status

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