The Different Types of Unsecured Loans

An unsecured loan is one which does not require the borrower to put up any collateral. Instead, money is lent based on the borrower’s creditworthiness. Let’s take a look at the different types of unsecured loans which are available:

Credit Cards
These are by far the most popular type of unsecured loan. In fact, the credit card industry has grown to be so huge, many fear consumers simply have too much unsecured debt. This was without a doubt a contributing factor in the recession which spanned from the end of 2008 to early 2010. Today there are thousands of different credit cards on the market. According to CreditCardForum.com, the biggest issuers in the U.S. are Bank of America, Citi, Chase, American Express, Discover, and Capital One.

Charge Cards
Unlike a credit card, the purchases made with a charge card must be paid back in full at the end of the billing cycle (which is typically once per month). Therefore, it charge cards are classified as a short-term unsecured loan. The most popular charge card was also one of the first; the American Express Gold was launched in 1966.

Educational Loans
The second most common unsecured loan in the U.S. would be educational loans. Being that colleges and universities now run as much as $35,000 annually, it’s not uncommon for a student to graduate with $100,000 or more in student loans.

Traditional Unsecured Loans
This is a loan made by a bank or financial institution to an individual, solely based on their creditworthiness and not their assets. Years ago, this was a very popular form of a loan, especially for those that had long term relationships with their banks. However nowadays, due to the popularity of credit cards, traditional unsecured loans are not nearly as common as they once were.