Also called signature loans or personal loans. These loans are often used by borrowers for small purchases such as computers, home improvements, vacations or unexpected expenses.An unsecured loan means the lender relies on the borrower's promise to pay it back. Due to the increased risk involved, interest rates for unsecured loans tend to be higher. Typically, the balance of the loan is distributed evenly across a fixed number of payments; penalties may be assessed if the loan is paid off early. Unsecured loans are often more expensive and less flexible than secured loans, but suitable if the lender wants a short-term loan (one to five years).