An unsecured personal loan is one which does not use any of your assets as collateral. Most credit card loans, for example, are a form of unsecured debt. While unsecured personal loans can be a good option, especially if you don’t have any assets to use as collateral, they can also hurt your long-term financial health in a few ways.
Since lenders offering unsecured personal loans have less assurance that their loan will be honored, they charge higher interest rates. After all, if you default on a mortgage, a lender can legally repossess your home and resell it to recoup their money. If you default on your credit card, lenders cannot take anything from you (except your good credit rating). As a result, lenders charge higher interest fees on unsecured personal loans, so these forms of loans are more expensive. Having lots of unsecured personal loans could be costing you a lot of money in interest.
Plenty of unsecured personal loans can also hurt your credit score. When lenders look at your credit report, they may be wary if they see lots of unsecured debt, since this form of debt is a higher risk. In many cases, lenders feel more comfortable with secured debts, which at least show you have some assets in place.