What is a personal loan?

A personal loan is primarily defined as an unsecured loan which individuals utilize to cover personal expenses, such as medical bills, debt consolidation, home improvements, or even vacations. Unlike secured loans, personal loans do not require collateral, which means that the borrowing is based on the creditworthiness of the borrower rather than on any asset.

This flexibility allows borrowers to use the funds for a wide array of purposes that might not necessarily be tied to the acquisition of property or investment. The lack of need for collateral can make obtaining a personal loan easier for some individuals who may not own valuable assets to pledge.

In contrast, other types of loans mentioned, like secured loans for home purchasing or loans specifically for investment purposes, have more restricted uses and often come with collateral requirements. For instance, a secured loan requires specific assets to back the loan, while business investment loans are tailored for use in business financing rather than personal expenses.