What does an unsecured loan lack as a requirement for borrowing?

An unsecured loan is characterized by the absence of collateral, which means that the borrower does not need to provide any assets to secure the loan. In a situation where the borrower defaults on the loan, the lender does not have the right to take any collateral, as there isn't any tied to the loan agreement. This makes unsecured loans riskier for lenders compared to secured loans, which are backed by collateral such as a house or a car.

While interest rates are always a component of loan agreements, they are not a requirement that distinguishes between secured and unsecured loans. Additionally, credit history and employment verification can still be assessed by lenders when evaluating borrowers for unsecured loans, even though these factors don’t change the requirement of collateral. Therefore, the defining characteristic of an unsecured loan is the lack of collateral, ensuring that the loan is primarily awarded based on the borrower’s creditworthiness instead.