An unsecured loan is issued mostly on a borrower’s creditworthiness, as opposed to a secured loan, which requires some form of collateral, such as a home, vehicle or savings account. Unsecured loans include most personal loans and student loans, while common examples of secured loans include mortgages and car loans. You don’t necessarily need a high credit score to qualify for an unsecured loan, but borrowers who have the highest credit ratings generally get the best interest rates and terms.
Depending on your financial needs, personal assets and credit history, an unsecured loan might be the right option for you. Unsecured loans involve borrowing money without having to put up the collateral needed for a secured loan. The advantage of a no-collateral loan is that you avoid the risk of repossession if you don’t make loan payments.
As you might expect, unsecured loans are considerably riskier for lenders, especially for borrowers with subpar credit. Such borrowers can expect to pay higher — and in some cases much higher — interest rates. Still, lenders will most likely consider other factors as well, such as your income and debt-to-income ratio, or how much debt you have relative to income.
The terms on unsecured loans have typical lengths of two to five years, while the total loan amounts often range from $1,000 to $50,000. Unsecured loans can also be used for almost anything — for business loans, home improvement projects and covering medical bills, as well as for consolidating debt (popular with personal loans) and even paying for big-ticket purchases, such as a major vacation.
Consumers who need money quickly might want to consider an unsecured personal loan. This is because the application and approval process tends to be fast, sometimes taking just a few hours. Access to funds is typically quick, too, often within a matter of days following loan approval.
Personal loan proceeds can be used to pay for almost anything, including the following:
Interest rates for these loans vary widely, so it makes sense to get quotes from several competing lenders before making a commitment. To simplify the process, you may also consider filling out an online form through LendingTree to get up to five loan offers from partner lenders, depending on your creditworthiness.
When shopping for the best unsecured personal loan, compare the interest rate, fees and APR. It’s also important to look out for certain conditions, such as prepayment penalties, and double check the loan’s terms and payment schedule before signing.
Most unsecured personal loan lenders require borrowers to have good credit, generally defined as a credit score of 670 or above. Your chances of getting a loan will be much lower if you have a score less than 670, a history of missed payments, debt collections or charge-offs by lenders for debt you were unable to pay.
If you have poor credit, you may still be able to find a reputable provider for a personal unsecured loan. And even if you’re a subprime applicant, some lenders may be willing to loan money if you have a cosigner.
However, you should be on the lookout for lenders advertising unsecured loans for bad credit or unsecured loans with no credit check — these aren’t standard personal loans. Most likely they are payday loans, check advance loans, or car title loans; these all typically come with very short terms and very high-interest rates. Payday loans are often advertised on storefronts or online. But, according to the Federal Reserve Bank of St. Louis, the average payday loan recently carried an extremely high-interest rate of nearly 400%.
Interest rates on unsecured personal loans can vary dramatically according to the lender’s policies and the credit rating of the borrower. According to LendingTree data, average rates for unsecured personal loans in the fourth quarter of 2019 were as follows:
| Credit Score Range | Average APR |
| 720+ | 7.63 |
| 680-719 | 11.88 |
| 660-679 | 18.53 |
| 640-659 | 26.15 |
| 620-639 | 38.64 |
| 580-619 | 65.70 |
| 560-579 | 105.39 |
| Less than 560 | 113.62 |
Unsecured debt is debt that isn’t backed by a form of collateral. For example, credit card debt is unsecured debt — if you default, nothing is seized. Mortgage debt, on the other hand, is secured debt. If you default, you could lose your home.
Personal loans can be both. Many personal loans, such as student loans, are unsecured, with no collateral required. Secured personal loans, on the other hand, require some kind of collateral, such as a car for a car loan. In some cases, a lender might also be willing to accept another type of collateral, such as a cash deposit, certificate of deposit (CD) or savings account. For borrowers, that can get risky; it means a lender will likely put a hold on your account until the debt is paid off.
Outside of personal loans, other types of unsecured loans include student loans, payday loans and many personal lines of credit.
If you default on an unsecured personal loan, your credit score will take a major hit. Lenders might sell your debt to a third-party collection agency in an attempt to recover some of it, alert credit bureaus to the default or take you to court. All three actions could negatively impact your credit for years.
Start by visiting LendingTree’s online marketplace, which compares different lenders. Popular online lenders for unsecured personal loans include Lightstream, Payoff, Upgrade, SoFi and LendingPoint.
Some payday and title lenders will advertise unsecured personal loans with guaranteed approval. This is a risky path to take, as payday and title loans come with short terms and often exceptionally high interest rates, and some lenders may be predatory. It’s usually best to avoid unsecured personal loans that promise guaranteed approval.
Lenders that advertise “unsecured loans no credit check” are likely the same lenders that promise guaranteed approval. This means they’ll have similar drawbacks — loans with short terms, high interest rates and potentially predatory behavior.