When you need to finance a large expense but don’t feel comfortable backing a loan with personal assets, an unsecured loan — which doesn’t require collateral — may be the way to go. The best unsecured loans offer low interest rates and fees, a range of terms, fast funding, and great customer service.
Best unsecured loans
Methodology
Credible evaluated the best personal loan lenders for unsecured loans based on factors such as customer experience, minimum fixed rate, maximum loan amount, funding time, loan terms, fees, discounts, and whether cosigners are accepted. Credible’s team of experts gathered information from each lender’s website, customer service department, directly from our partners, and via email support. Each data point was verified by a third party to make sure it was accurate and up to date.
How to compare unsecured personal loans
When looking for the best-unsecured loans, it’s important to compare different options to find the right one for you. As you research, pay attention to the following:
- Interest rates: A loan’s APR and interest rate determines the cost of borrowing. However, your APR or annual percentage rate, also includes fees and additional costs. The lower your APR, the less you’ll pay to borrow.
- Fees: Along with interest, you’ll have to pay fees. Check to see what fees different lenders charge, and how much they are. Typical fees include origination fees, late payment fees, annual fees, and more.
- Prequalification: Comparing lenders that can prequalify you for a loan can make shopping easier because you can find out your estimated interest rate without a hard credit check. Lenders will perform a soft credit pull, which won’t affect your credit score. However, once you submit a formal application, this will trigger a hard credit pull, which can temporarily lower your score slightly. Remember that prequalification is not an offer of credit, so your final rates may be higher.
- Terms: Compare loan terms and make sure the loans you’re considering offer ones that work for you. For instance, a loan with a low-interest rate will likely still come with high monthly payments if the loan term is short. On the other hand, a loan with a long term may end up costing more in interest in the long run.
- Funding time: Funding time varies quite a bit by lender. Some lenders — especially those that operate online only — can provide funding in a matter of days. Other lenders take a week or more to get the money into your account. If you have a tight timeline, look to lenders with fast funding.
- Lender credibility: It’s also worth your time to vet the lenders you’re considering borrowing from. Check customer satisfaction reviews to verify you’re considering reputable lenders.
Eligibility requirements for unsecured personal loans
Since unsecured personal loans don’t require collateral, eligibility requirements tend to be stricter than those for secured loans.
Generally, lenders require, at a minimum, that you be the age of majority in your state and have a physical and email address. In many cases, you must also be employed or soon-to-be employed — or receive income from another source.
Depending on the lender, you’ll see some other eligibility requirements:
- Income: Some lenders require that you make a certain minimum salary. For example, Discover’s income requirement for a personal loan is $25,000, while LendingPoint’s is $35,000.
- Debt-to-income ratio (DTI): Your DTI is your total monthly debt payment divided by your gross monthly income, expressed as a percentage. The lower your DTI, the less risky you appear to lenders. Lenders typically like to see a DTI under 35%, though some will accept higher.
- Credit score: Individual lenders may accept different ranges of credit scores, but generally, they look for scores in the “good” to “excellent” FICO range — typically above 670. However, borrowers with lower credit scores can often still qualify for a loan with a cosigner.
While these eligibility requirements are somewhat standard, lenders can and do take your entire financial situation into account. Having a certain credit score, for example, may not make or break your ability to qualify for a loan.
How to get an unsecured personal loan
Getting an unsecured personal loan is usually a straightforward process if you meet a lender’s eligibility criteria. The process varies by lender, but you’ll go through the following steps:
- Check your credit: Your credit will have an influence on the loans you can qualify for, so it’s smart to know your score ahead of time. If your score isn’t great and you’re not in a hurry to get your loan, it may be worth trying to improve your credit — by paying off some credit card debt, for example — before applying for a loan.
- Compare lenders: Research different lenders and compare them based on APRs, available terms, eligibility requirements, and customer satisfaction.
- Apply for a loan: Choose your loan and apply online or in person. You’ll typically need documentation proving your identity, address, income, and employment. If you have a cosigner, they’ll need to provide their information, too.
- Finalize the loan and begin payments: Once approved, you’ll need to formally accept your loan — that is, sign the paperwork. Then you’ll receive the funds in your bank account within a couple of days to a week. Your payments will start right away, so enroll in autopay or mark your calendar to pay the monthly installments manually.
How to improve your chances of approval
Since unsecured loans are tougher to qualify for, you may have trouble securing one if your credit is not ideal. If that’s the case, you aren’t out of options. Always start by checking your credit report for any mistakes and to see where there’s room for improvement. Then try one or more of the following in order to improve your chances of approval:
- Boost your income: Increasing your income can help you qualify for an unsecured loan because it lowers your DTI. Consider negotiating a raise, starting a side hustle, or looking for a higher-paying job, if possible.
- Pay off small debts: Paying off smaller debts, like credit card balances, can help boost your credit score if it lowers your credit utilization — the amount of available credit you actually use. And a higher credit score makes it easier to qualify for an unsecured loan.
- Add a cosigner: A cosigner can improve your chances of getting approved for a loan if they have better credit, more income, or a generally better financial situation than you do. But they’ll be on the hook for paying back the loan, and their credit could suffer if you default.
- Get a secured loan: You may have a better chance of qualifying for a secured loan since it’s less risky for the lender. With a secured loan, you need to provide collateral, like your house, vehicle, or other assets, to qualify. But keep in mind that if you default on your loan, your collateral will be seized by the lender.
Pros and cons of unsecured loans
As with any financial product, there are pros and cons to consider when it comes to unsecured loans.
Pros:
- No collateral: Borrowers don’t need to provide any assets in the form of collateral to qualify for a loan.
- Fixed payments: Fixed monthly installments can make budgeting to pay off your loan easier.
- Improve your credit score: Making monthly payments on time while repaying your loan can boost your credit score.
- Versatility: A personal loan is versatile — you can use it for almost any big purchase or to consolidate your debt.
Cons:
- Higher interest rates: Unsecured loans typically have higher interest rates than secured loans.
- Harder to qualify: Because no collateral is needed, borrowers may need a higher credit score in order to qualify for an unsecured loan.
- Consequences of defaulting: Even though borrowers don’t need to provide collateral, lenders can still take legal action against you if you default on the loan.
Differences between secured and unsecured loans
Unsecured loans tend to be riskier for lenders because there’s no collateral involved. In other words, lenders have less of a guarantee they’ll be repaid.
For the borrower, the best-unsecured loans can be less risky because you don’t have to back your loan with any of your personal assets. On the other hand, this makes unsecured loans more difficult to qualify for. Unsecured loans typically have higher interest rates and stricter eligibility requirements, too.
FAQ
What are the different types of unsecured loans?
Most personal loans and credit cards, as well as student loans, are considered unsecured loans. These loans don’t require collateral to qualify — borrowers have to meet other eligibility requirements. Note that secured personal loans and secured credit cards do require collateral.
Can you get an unsecured loan with bad credit?
You may be able to get an unsecured loan with bad credit. Every lender has different policies, and some lenders are more willing to work with borrowers who have bad credit. The downside is they may charge you a higher interest rate to borrow. Another option is to apply for a loan with a cosigner, which can increase your chances of qualifying with bad credit.
What are the different types of secured loans?
Secured loans include mortgage loans, home equity loans and lines of credit, and auto loans. They each require collateral — in the first two examples, your home, and in the third, your car. However, personal loans and credit cards, which are typically unsecured loans, can also be secured. That simply means they’re backed with some sort of asset, like cash or a vehicle.
What are the common uses for unsecured loans?
Unsecured loans can be used for almost anything. Some common uses for personal unsecured loans include emergency expenses, weddings, vacations, debt consolidation, IVF or family planning, and more. When it comes to things like college education, vehicles, and houses, however, it makes more sense to go with a secured loan because they tend to have lower interest rates.