What Is an Unsecured Loan? Definition & Best Lenders
Unsecured loans, unlike mortgages or auto loans, don’t require any collateral. This means you don’t have to deal with as much paperwork when applying and that you can use them for almost any reason, making them a useful financial tool.
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If you’re making a big purchase, you might want to borrow money to help you cover your costs. There aren’t many people who can pay for a house out of pocket, so lenders offer mortgages. Cars are expensive, and auto loans are designed to help people pay for them.
But what do you do if you want to make a large purchase and there isn’t a loan specifically for that type of transaction? Typically, you’d get an unsecured loan.
Unlike mortgages and auto loans, unsecured loans don’t require any collateral. The only thing you need to provide is a good enough credit history and a promise to repay the loan. There are many unsecured loan options out there, so you’ll need to compare lenders to find the best fit.
In this guide:
Unsecured loan definition
An unsecured loan is a loan that does not require any collateral. Collateral is something of value that you offer to a lender to guarantee that you’ll pay back your loan. For example, if you don’t pay your auto loan, your lender can repossess your car, because the car served as the loan’s collateral.
There are many different sources of unsecured debt: credit cards, student loans, personal loans, small business loans, and personal lines of credit.
If you’re planning for a large expense, such as a home improvement project or if you want to consolidate your existing debts, an unsecured personal loan is probably your best bet.
What is an unsecured personal loan?
An unsecured personal loan is a loan that you can use for almost any purpose. Many banks, credit unions, and online lenders offer personal loans, making it easy to find a lender in your area. Unlike payday loans, these loans offer competitive interest rates and years to repay your balance.
To get a personal loan, all you have to do is fill out an application with your online lender. Most lenders will want you to have a good credit score because you’re not offering any collateral. But even if your credit score isn’t great, you may be able to find a fair credit loan or bad credit loan.
Typical personal loan lenders offer loan terms ranging from 3 to 5 years, though some go as high as 7. You’ll typically be able to borrow between $2,000 and $30,000, though some lenders allow you to borrow as little as $1,000 and others allow you to borrow as much as $100,000.
Rates are usually higher than rates for secured loans, like auto loans or mortgages, but lower than rates for revolving debt, such as credit card debt.
Pros & cons of unsecured personal loans
Pros
- No collateral required, so your assets face less risk if you fall into loan default.
- Can be used for almost any purpose
- Low minimum loan amounts
- Many options when choosing a lender
- Can get funding in as little as a few business days
Cons
- Higher interest rates than secured debt, such as a home equity loan
- Can be harder to qualify for than some secured loans if you don’t have good credit
What can an unsecured personal loan be used for?
You can use an unsecured personal loan for all sorts of things. Some of the most popular ways to use one are:
- To pay off multiple medical bills
- As a debt consolidation loan
- As a home improvement loan
- To pay for moving costs
- To finance a vacation
Unsecured loan requirements
There’s no one list of eligibility requirements for an unsecured loan. Each lender has its own requirements, but all look for creditworthiness in their prospective borrowers.
Some might be willing to offer loans to people with poor credit, though at a high rate, while others will only accept very good credit scores.
Typically, you’ll need good-to-great credit to get a personal loan at competitive rates. Your lender will also want proof that you can pay the loan back. That means proof of assets or employment, a reasonable debt-to-income ratio, and a history of making other monthly payments on time.
How to apply for an unsecured personal loan
Applying for a personal loan is quick and easy. You don’t even have to visit your local bank. There are many online lenders, and most banks offer online applications. All you have to do is visit your potential lender’s website and get a quote for your loan.
To get your prequalified quote, you’ll need to provide some basic information to the lender, including your:
- Name
- Address and phone number
- Date of birth
- Social Security number
- Annual income
- What you plan to use the loan for
Based on the information you provide the lender can give you a quote. If you like the terms the lender offers, you can move forward with the full loan application.
At that point, you’ll need to provide additional information, such as bank account info, paystubs or other proof of income, and the lender will run a hard inquiry into your credit report to verify your creditworthiness.
Best unsecured personal loans
To help you get the best loan possible, we’ve listed several of our top-rated personal loan partners below.
If you’d like to see more options, read our guide to the best personal loans.
| LightStream | Upgrade | Upstart | |
| Loan amount | $5,000 – $100,000 | $1,000 – $35,000 | $1,000 – $50,0002 |
| Term lengths | 24 – 144 months** | 36 or 60 months | 36 or 60 months |
| Fixed APRs | 3.49% – 19.99%* with AutoPay | 7.99% – 35.97% | 8.27% – 35.99%1 |
| Origination fees | 0% | 2.9% – 8% | 0% – 8% |
| Minimum credit score | 660+ | 620+ | 600+ |
| Visit lender | View Rates | View Rates | View Rates |
*Your loan terms, including APR, may differ based on loan purpose, amount, term length, and your credit profile. Excellent credit is required to qualify for lowest rates. Rate is quoted with AutoPay discount. AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice.
**Payment example: Monthly payments for a $10,000 loan at 5.95% APR with a term of three years would result in 36 monthly payments of $303.99.
1The full range of available rates varies by state. The average 3-year loan offered across all lenders using the Upstart platform will have an APR of 21.97% and 36 monthly payments of $35 per $1,000 borrowed. For example, the total cost of a $10,000 loan would be $12,646 including a $626 origination fee. APR is calculated based on 3-year rates offered in the last 1 month. There is no down payment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application.
2Your loan amount will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will qualify for the full amount. Loans are not available in West Virginia or Iowa. The minimum loan amount in MA is $7,000. The minimum loan amount in Ohio is $6,000. The minimum loan amount in NM is $5100. The minimum loan amount in GA is $3,100.
