Updated
May 30, 2023 If you want to make a big purchase and don’t have the cash set aside, you might consider borrowing money to cover the cost. A personal loan is one type of financing that can be used for various purposes.
Most personal loans are unsecured, meaning they don’t require collateral. Instead, you must meet the lender’s requirements for credit score and other eligibility factors, and there are unsecured loan options for every credit score.
Here’s what you need to know about unsecured personal loans and how to find the best fit for your unique situation.
In this guide:
- What is an unsecured personal loan?
- The best unsecured personal loan lenders based on your credit profile
- What is an unsecured personal loan used for?
- How unsecured and secured personal loans compare
- Pros and cons of unsecured personal loans
- Who are unsecured loans best for?
- Can you get an unsecured personal loan with bad credit?
- How to apply for an unsecured personal loan
- Alternatives to unsecured personal loans
What is an unsecured personal loan?
Unlike a secured loan, an unsecured personal loan can be used for almost any purpose and doesn’t require collateral. Auto loans and mortgages are two of the most common types of secured loans; with them, the car or house is the collateral. You must use the loan to purchase those items.
With a personal loan, you typically receive a lump sum of money upfront and can use it how you’d like, including for house renovations, debt consolidation, a large purchase, wedding bills, or fertility treatment. Various lenders, such as banks, credit unions, and online lenders, offer these loans.
Personal loans have competitive interest rates and a range of repayment terms. Even though the rates for these loans are usually higher than the ones for secured loans, they are lower than those for revolving debt, like credit cards.
Typical personal loan lenders offer loan terms ranging from three to five years. The loan amounts are usually between $2,000 and $30,000. But some lenders allow you to borrow as little as $1,000, and others will enable you to borrow as much as $100,000.
To get a personal loan, you usually need to complete the following steps:
- Compare lenders: Research lenders and find the best fit.
- Review the loan application requirements: Some lenders require an excellent or good credit score. But you can also find loans for fair or thin credit.
- Get preapproved: Complete the preapproval process with the lender you choose.
- Complete the application: Once preapproved, complete the application and select the terms.
The best unsecured personal loan lenders based on your credit profile
When choosing an unsecured personal loan and lender, you’ll want to consider factors such as repayment terms and whether you can meet the lending requirements with your credit score.
In general, credit scores are categorized as follows:
- Excellent credit: 850 – 740
- Good credit: 739 – 670
- Fair credit: 669 – 580
- Poor or thin credit: 579 – 300
Various personal loan lenders offer products geared toward borrowers in every credit category. Below, we’ve identified the best unsecured personal loan lenders based on your credit profile.
Best for excellent credit: LightStream
Unsecured personal loan
- No fees during the application process or after
- Quick loan funding
- Outstanding customer service
LightStream offers competitive unsecured personal loans with interest rates rivaling those for home equity loans and lines of credit. If you have excellent credit, you can enjoy accessible customer service support, same-day funding, and no fees.
While other companies charge up to 10% of the total loan as an origination fee, LightStream does not. For a $25,000 loan, you could save up to $2,500 on origination fees with LightStream.
But even though you can view projected repayment terms before you apply, you can’t get preapproved for a loan. There will be a hard inquiry on your credit score when you apply, which can lower your credit score by a few points. It’s not a dealbreaker, but it’s something to be aware of.
- Recommended credit: 660+
- Prequalify with a soft credit check: No, but you can view rate projections online
- Rates (APR): 7.49%% – 24.49%% with AutoPay
- Loan amounts: $5,000 – $100,000
- Repayment terms: 24 – 144 months, depending on the loan type
- Funding time: Same-day funding available
- Disclosed fees: None
Best for good credit: SoFi
Unsecured personal loan
- Various rate discounts
- Unemployment protection
- No fees required
SoFi is a popular online lender with competitive unsecured personal loan offerings. The repayment terms are flexible, and you automatically qualify for unemployment protection which can be helpful if you’re in between jobs. But you usually need a good or excellent credit score to qualify.
There are no fees required. Plus, the application process is intuitive and simple. You can also receive the funds the same day after you finalize the paperwork.
- Recommended credit: No minimum score, but 660+ is usually preferred
- Prequalify with a soft credit check: Yes
- Rates (APR): 8.99% – 23.43% with AutoPay
- Loan amounts: $5,000 – $100,000
- Repayment terms: 24 – 84 months
- Funding time: Same-day funding available
- Disclosed fees: No fees required
Best for fair credit: Upgrade
Unsecured personal loan
- Easy prequalification process
- Origination fee for every loan
- Same-day funding
It can be challenging to find lenders when you have fair credit, but if your credit score is at least 580, Upgrade might be a good fit. Even though you might pay a higher interest rate with Upgrade, there are solid loan options of up to $50,000 for borrowers with fair credit scores.
Consider the cost of Upgrade’s origination fee—up to 9.99%—as you compare lenders. Even if you can secure a lower interest rate with Upgrade than other lenders, the origination might offset some of your savings.
- Recommended credit: 580
- Prequalify with a soft credit check: Yes
- Rates (APR): 8.49% – 35.99%
- Loan amounts: $1,000 – $50,000
- Repayment terms: 24 – 84 months
- Funding time: Same-day funding available
- Disclosed fees: 1.85% to 9.99% origination fee, $10 per late payment
Best for thin credit: Upstart
Unsecured personal loan
- Unique credit scoring model
- Minimum credit score of 300
- Two repayment terms—3 or 5 years
Upstart utilizes a unique credit scoring model designed to provide funding to borrowers that other lenders might overlook. Instead of only considering credit score and payment history, Upstart looks at employment, education history, and other factors. As a result, Upstart provides 43% lower rates, so it might be a good option if you have thin credit.
The company offers competitive interest rates, but the highest rate is 35.99%% which can dramatically increase the loan cost. You might also have to pay an origination fee of up to 10%. It’s a good idea to consider these costs as you shop for the best fit.
- Recommended credit: 300
- Prequalify with a soft credit check: Yes
- Rates (APR): 6.7%% – 35.99%%
- Loan amounts: $1,000 – $50,000
- Repayment terms: 36 or 60 months
- Funding time: 1 business day
- Disclosed fees: 0% – 10% origination fee, late fees
What is an unsecured personal loan used for?
There aren’t any restrictions on how you use a personal loan. Some of the most popular ways to use the loans include:
- Pay off medical bills: If you have multiple medical bills, you can use a personal loan to simplify payments or secure a better interest rate.
- Consolidate your debt: Debt consolidation is a common use of a personal loan.
- Improve your home: Personal loans can help cover the costs of home renovations if you don’t have the cash readily available.
- Cover moving costs: Moving is expensive, and you might use a personal loan to help cover the upfront costs.
- Finance a vacation: You need to consider the pros and cons, but you could use a personal loan to pay for an upcoming vacation.
How does an unsecured personal loan compare to a secured one?
Here’s an in-depth look at how unsecured and secured loans compare. If the loan is for a specific purpose, you might be able to get a lower interest rate or more favorable terms with a secured loan. It might be a good idea to consider both depending on your needs.
| Secured | Unsecured | |
| Loan amount | Depends on the type, but up to multiple millions for home loans | Usually up to $100,000 |
| Loan length | Up to 30 years | Usually up to 60 months |
| APR | As low as 4% | As low as 7% |
| Collateral | Yes | No |
| Best for | Real estate, cars, and home improvements | Large or unexpected expenses |
Pros and cons of unsecured personal loans
There are pros and cons to unsecured personal loans. Here are some to consider.
Pros
-
No collateral necessary
If you ever default on your loan, your assets are not at risk.
-
Use the loan for almost anything
With an unsecured loan, there are few restrictions on how you use the funds.
-
Low minimum loan amounts
You might be able to get a smaller loan, which can be helpful if you don’t need a large amount of money.
Cons
-
Higher interest rates
Depending on your credit score and other factors, you might pay a higher interest rate with an unsecured loan.
-
Stricter qualification requirements
Because the lender does not have collateral as a guarantee, the interest rates for an unsecured loan might be higher.
-
Shorter repayment terms
Unsecured loans might have shorter repayment terms, which can mean the monthly payments are higher.
Who are unsecured loans best for?
Even though eligibility requirements vary from lender to lender, you should consider a few factors to determine if an unsecured loan makes sense.
- Credit score: There are lenders for every type of credit score, but a lower score could lead to less favorable lending terms.
- Proof of employment: You often need stable work to qualify for an unsecured loan.
- Reasonable debt-to-income ratio: Lenders often consider your debt-to-income ratio or how much you earn each month compared to your total debt payments.
- Payment history: Lenders consider whether you have a track record of making timely monthly payments.
These factors impact your loan terms and whether you can qualify for a competitive unsecured loan offer. You’ll also want to consider why you need the loan, whether you can afford the monthly payments, and if you can secure more competitive terms for a different loan type.
Can you get an unsecured personal loan with bad credit?
There are unsecured personal loans for every type of credit, including bad credit. Fair credit is a score between 580 to 669. Thin or bad credit is a score between 300 and 579.
If you have a bad or thin credit score, you might qualify for less favorable loan terms and pay a higher interest rate, so it’s important to consider the loan’s overall cost, including interest charges. Once you calculate the total cost, you can determine if the loan makes sense for your finances.
Even though you might pay a higher interest rate for an unsecured loan with bad or thin credit, it’s usually less than the rate you would pay for a title or payday loan. So if you need a loan, unsecured personal loans might be a solid option regardless of your score.
How to apply for an unsecured personal loan
It’s relatively quick and easy to apply for a personal loan. You can get a loan through your bank, credit union, or an online lender.
Most lenders—even those with physical locations—offer a straightforward online application process that only takes a few minutes to complete. You can often receive the funds as soon as the next business day.
You usually complete the preapproval process through your lender to start the application. Preapproval usually involves a soft pull on your credit which does not impact your score. You often need to provide some basic information to the lender, including:
- Name
- Address and phone number
- Date of birth
- Social Security number
- Annual income
- Purpose of the loan
Based on your information, the lender can preapprove you for the loan. You can review the repayment terms, loan amount, and interest rate. If you’re happy with the terms, you can proceed with the loan application.
To complete the application, you must provide additional information like your bank account paystubs or other proof of income. At this point, the lender usually runs a hard inquiry into your credit report to verify your creditworthiness.
Alternatives to unsecured personal loans to consider
You might consider these alternatives if an unsecured loan doesn’t seem right.
Personal line of credit
A personal line of credit is similar to a credit card. The lender approves you for up to a certain amount, but you don’t receive the money as a lump sum.
Instead, the money is available through a line of credit, and you are only responsible for repaying what you spend. For example, if you have a $20,000 line of credit but only spend $15,000, that’s all you need to repay.
With an unsecured personal loan, you receive the loan amount as a lump sum and are required to repay the entire amount.
If you need access to money for a large expense but aren’t sure how much you need, a personal line of credit might be a fit. Home renovations and other big projects often fall into this category.
0% APR credit card
Depending on your credit score, you might qualify for a balance transfer credit card that offers a 0% introductory interest rate for a specified time. If you need to consolidate credit card debt, a balance transfer credit card can be a solid choice.
However, there might be a balance transfer fee, and you need to pay off the balance before the introductory offer expires, or you might not save any money.
Some credit cards offer 0% APR for a specified time without a balance transfer. You might use the card to pay for significant expenses or to complete an extensive repair. The credit card issuer might be affiliated with the store or repair company and offer the card as an additional perk for customers.
However, you still need to pay off the balance before the rate expires, or you might pay more than you would with other financing options.
Home equity loan or line of credit
If you are a homeowner with equity in your home, you might consider a home equity loan or home equity line of credit (HELOC). These are secured loans that utilize your house as collateral. Because of that, the loans usually offer competitive interest rates and extended repayment terms.
Depending on the home equity loan type, you can also choose between a variable or a fixed interest rate. The processing time is a bit longer than personal loans, but it might be worth the wait to secure a better rate.
However, these loans are only available to homeowners with equity, so it’s not a good option if you don’t meet that criterion.