What characterizes an unsecured loan?

An unsecured loan is characterized by the fact that it is not tied to any asset or collateral. This means that the lender does not have any claim to specific assets if the borrower defaults on the loan. Unsecured loans rely primarily on the borrower's creditworthiness and ability to repay. Since there is no collateral, lenders typically assess the borrower's credit score, income, and financial history to determine the risk of lending money without securing it against an asset.

Other options describe characteristics not applicable to unsecured loans. For example, requiring a co-signer (often indicated in the first option) can be a feature of some loans, but it does not define unsecured loans as a whole. Similarly, loans backed by collateral pertain specifically to secured loans, which is not the case for unsecured loans. Lastly, the presence of a fixed interest rate can apply to both unsecured and secured loans, so it does not uniquely characterize unsecured loans. Thus, recognizing that unsecured loans stand distinct due to the absence of collateral is key to understanding their nature within the spectrum of lending options.