Money borrowed that is guaranteed only by a promise to repay it is known as?

Money borrowed that is guaranteed only by a promise to repay it is categorized as an unsecured loan. This type of loan does not have specific collateral backing it, meaning that the lender cannot directly claim an asset if the borrower fails to repay the loan. Instead, the lender relies on the borrower’s creditworthiness and ability to repay in accordance with the agreed terms. Unsecured loans typically carry higher interest rates compared to secured loans, as they represent a higher risk to the lender.

In contrast, secured loans are backed by collateral that the lender can seize if the borrower defaults, such as a house or a car. Interest refers to the cost of borrowing money, usually expressed as a percentage of the loan amount, while a dividend is a payment made to shareholders from a company’s profits and is not related to loans. Understanding these distinctions is crucial in grasping the principles of borrowing and lending within the financial system.