Which type of loan is guaranteed only by a promise to repay it?

An unsecured loan is characterized by the absence of collateral; it is guaranteed solely by the borrower's promise to repay the borrowed amount. This means that lenders rely on the borrower's creditworthiness and ability to repay the loan rather than any physical assets that can be seized if the borrower defaults. Unsecured loans typically come with higher interest rates compared to secured loans because they present a greater risk to the lender.

In contrast, secured loans require collateral, such as property or savings, which the lender can claim if the borrower fails to repay. Similarly, a collateral loan is a specific type of secured loan where a borrower pledges an asset as security. Mortgages are also secured loans, specifically tied to real estate, where the property itself acts as collateral for the loan. This distinction highlights the unique nature of unsecured loans, where reliance is placed fully on the borrower's commitment to honor the repayment terms without the backing of any assets.