Unsecured Creditor

You lend money to your buddy Stooge. No. Pot. To. P. In. He lives inside an abandoned Ford Pinto underneath an abandoned aqueduct right next to an abandoned asbestos factory. You don't even ask for the Pinto as collateral (it's not really his anyway).

You are an unsecured creditor. If Stooge defaults on the loan, you have no recourse to collect. In real life, credit cards represent the most widely known unsecured creditors. They don't ask for collateral before they loan you money to buy that new bedspread online. Theoretically, that's why the interest rates are so high...they have no recourse if there's a default.

On the other end of the spectrum, you have secured creditors. Their loans come with collateral. A bank making a mortgage loan is a secured creditor. If the loan goes sour, they can foreclose on the house and sell it to square up the loan.