What is unsecured loan capital?

Answer 1

When you ask someone or a bank to lend you money (you are taking out a loan from them), the money they give you is called 'loan capital'.

Many lenders will, before they give you this money, ask you to give them some item of property you own (e.g. jewellery) or the deeds to a property you own as security against the money they will loan you. This security may me a complex legal document but the effect is the same, they 'hold' something that is yours (that is probably worth more than the amount they are lending you) and if you do not keep to the terms of the loan repayment agreement, what they 'hold' will be sold so that they can recover their money. The loan is therefore secure from the lenders point of view - they know they are not going to lose what they have lent you.

With an unsecured loan, no such property agreement is in place and the lender is at risk of losing their money if you do/can not pay it back. In these circumstances the interest payments are usually much higher on the loan to reflect the risk the lender is taking.