What is a personal loan?

A personal loan is best defined as an unsecured loan that is based on the borrower's creditworthiness. This means that the loan does not require any collateral—like a house or a car—that the lender could take if the borrower fails to repay the loan. Instead, lenders assess the borrower's credit history, income, and overall financial stability to determine their ability to repay the loan.

This type of loan can be used for a variety of purposes, such as consolidating debt, financing a major purchase, or covering unexpected expenses, which adds to its versatility compared to other forms of loans that may have specific restrictions or collateral requirements.

The other options focus on loans with conditions that are not typical for personal loans: collateral requirements, business-specific purposes, or government backing with fixed rates, which do not fit the broader and more general definition of what a personal loan encompasses.