What defines a personal loan?

A personal loan is best defined as an unsecured loan for various purposes. This means the borrower does not need to put up collateral to secure the loan, differentiating it from secured loans, which require some form of asset to back the loan amount. Personal loans can be used for a wide array of needs, including consolidating debt, financing a large purchase, or covering unexpected expenses. Their flexibility in purpose is a key component of what makes personal loans distinct.

In contrast, the other options focus on loans that serve specific purposes or require collateral, such as secured loans for home improvements, which involve using the home itself as collateral. Loans earmarked specifically for education expenses are often categorized as student loans, and mortgages uniquely focus on financing the purchase of property, which also involves a secured arrangement. Therefore, the defining characteristic of personal loans is their unsecured nature and the broad range of uses for which they can be applied.