Unsecured loans don’t require collateral, such as a home, vehicle or savings account. Instead, they are backed by the borrower’s creditworthiness and promise to repay the loan. A common type of unsecured loan is a personal loan.
Unsecured personal loans range from about $1,000 to $50,000. They’re repaid in fixed monthly payments over a set period of time, typically two to five years. They’re offered by banks, credit unions and online lenders.
Interest rates on unsecured personal loans can vary widely depending on the credit rating of the borrower as well as the loan terms, such as loan amount and length.
It’s possible for consumers with good or excellent credit to get a personal loan with a low interest rate, but bad-credit applicants will have a hard time qualifying for an affordable personal loan — if they receive any offers at all. The table below shows how APRs can vary based on credit score:
Average best offered APR by credit score
Yes, but with a few caveats. Unsecured loans are considerably more risky for lenders when compared with secured loans, especially for borrowers with subpar credit. Most unsecured personal loan lenders require borrowers to have good or excellent credit, defined as a credit score of over 660 by TransUnion. So, your chances of getting a loan will be much lower if you have a credit score of 660 or less, a history of missed payments, debt collections or charge-offs by lenders for debt you were unable to pay.
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, which come with short repayment terms and high interest rates.
If you have bad credit, you may still be able to find a reputable provider for a personal unsecured loan. You could also try the following:
Unsecured debt isn’t backed by a form of collateral. For example, your typical credit card debt is unsecured — 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 secured or unsecured, but they’re typically unsecured. Secured personal loans require some kind of collateral, such as a vehicle or savings account or certificate of deposit (CD).
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. These actions could negatively impact your credit for years.
Some payday lenders will advertise unsecured loans with guaranteed approval. This is a risky path to take, these loans come with short terms and often exceptionally high interest rates. It’s best to avoid unsecured loans with no credit check or guaranteed approval.