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What Is an Unsecured Personal Loan with No Collateral?

Unsecured Personal Loan with No Collateral; Unsecured personal loans do not require collateral, but may require higher approval requirements. Read more about the requirements and what you need to know.
Kim Franke-Folstad
Kim Franke-FolstadUpdated August 26, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
An unsecured personal loan allows you to borrow money for just about any purpose without requiring you to put up collateral. That means you won’t need to secure the loan with your home, your car, or any other asset.Instead, lenders for these loans look at your creditworthiness to determine how likely you are to make your loan payments on time. For that reason, the better your credit is, the better your chances at getting an unsecured loan with a competitive interest rate and terms. But because the lender is taking on more risk by not asking for collateral, an unsecured loan is typically more expensive than a secured loan. That’s true even if you have a good credit score, credit history, and debt-to-income ratio.It's important to understand these loans and know all your options before you take out an unsecured personal loan.

What Is an Unsecured Loan?

If you’re wondering, what is a personal unsecured loan, here’s a quick tutorial. With an unsecured loan, or a no-collateral loan, you agree to pay back a lender with interest and within a certain time period. You don’t put any property at risk the way you would with a secured loan. Instead, you qualify for an unsecured personal loan based on your creditworthiness.If you fail to make your payments on time — or at all — there can be consequences. But defaulting won’t directly result in the loss of an asset, as it would if you stopped making mortgage or auto loan payments.You can use unsecured personal loans for just about anything you like (depending on the particular lender’s restrictions). That could include making home improvements, consolidating debt, buying an engagement ring, or paying off a medical or dental bill. You might even choose to use a personal loan for a car purchase.Of course, that added flexibility in terms of how you can spend the money and the freedom from using collateral can come with a price. When comparing unsecured vs. secured loans, unsecured loans usually have higher interest rates. Further, the amount you can borrow with an unsecured personal loan may be limited by your credit history and income. 

How Do You Qualify for an Unsecured Personal Loan?

Because the lender is assuming more risk with an unsecured personal loan, your creditworthiness is chief among the five typical personal loan requirements. Lenders will want to know that you have a good track record when it comes to making payments on time, that you aren’t financially overextended, and that you have a reliable source of income.If you know your credit is good, you can start shopping for the best personal loan for you. But if there’s room for improvement, you may want to wait until after you’ve had a chance to work on your credit.If your credit feels a little shaky but you need the loan now, there may be lenders out there that will work with you on a small unsecured personal loan for bad credit. Just know that you may be offered less favorable terms and higher rates, and also make sure the lender is legitimate before moving forward.Here are some things lenders typically review when assessing a borrower’s credit:

Credit Scores

Lenders generally use credit scores to help gauge how much risk they’re accepting when they decide to work with a borrower. Some lenders may have a minimum credit score requirement, so if your scores are low, you may be denied a loan. And even if you’re accepted with lower scores, you may have to pay a higher interest rate.You can get an idea of what your credit scores look like by checking your bank or credit card statement, or by using a credit monitoring service. A service like SoFi Relay, for example, provides weekly credit score updates as well as money tracking and spending breakdowns at no cost.

Credit Reports

Lenders use credit reports to see how long you’ve been using credit, how much credit you’re currently using, and if you make your payments on time.If you aren’t sure where you stand, you can get free credit reports weekly through December 2022 from each of the major credit bureaus (TransUnion, Experian, and Equifax) at www.annualcreditreport.com. After that, you can get free reports annually from the government-authorized site.Even if you think you have excellent credit, it’s a good idea to check your reports regularly to make sure the information is up-to-date and accurate.

Debt-to-Income Ratio

Your debt-to-income ratio (DTI) shows how much you owe each month compared to how much you earn. Lenders use this ratio to see if you can cover your monthly bills and still repay your unsecured personal loan.To calculate your DTI, add up your total recurring monthly obligations (such as a mortgage, student loans, car loan, and credit card payments), and divide that number by your gross monthly income (what you earn before taxes and other deductions).The lower your DTI, the less risk you may appear to have to lenders. Maintaining a DTI of 35% or less could help make your application more appealing.Bear in mind that each lender can have its own guidelines for determining creditworthiness. You may be able to find those criteria on various lenders’ websites or by using a loan comparison site like Lantern.

What Credit Score Do You Need for an Unsecured Personal Loan?

There isn’t one definitive score that is sure to get you an unsecured loan. Both FICO® and VantageScore credit scores range from 300 to 850, with anything over 800 considered excellent.According to Experian, if your score is 670 or higher, you may qualify with more lenders and can look for a loan with a more competitive rate.

Can You Get an Unsecured Personal Loan With Bad Credit?

If your credit isn’t in the best shape, you may want to wait until you’ve had a chance to work on your score so you can get a better interest rate. However, if you need the loan now, there may be lenders out there who will work with you. Just as there are lenders who specialize in serving borrowers with excellent credit, there are also some that help borrowers with bad credit. You should be prepared for tougher terms and higher rates than those you may see advertised for borrowers with a better record. And always make sure you’re working with a legitimate lender.

Where Can You Get an Unsecured Personal Loan?

Unless you’re ready to spend a day (or more) checking out rates on individual websites, one of the easiest ways to find unsecured personal loan rates is by using a comparison site like Lantern, where you can customize your search by answering just a few questions.You may be able to get an unsecured personal loan from the following types of lenders.

Online Lenders

Because they have lower overhead costs than brick-and-mortar financial institutions, you may be able to save money by going with an online lender. The application process is usually quick and easy. But always make sure the lender is legitimate. Look for a lender that’s registered in your state (this information should be listed on their website) and whose contact information, including their physical address, is also clearly listed. And be sure they require a credit check before they offer you a loan.Stay away from any lender that isn’t registered in your state, guarantees approval without checking your credit, pressures you to act right away, or asks for payment upfront. 

Banks

A few major banks offer unsecured personal loans. If you like the idea of getting personal help with your loan or you’ve worked with the employees at your local branch, you can make an appointment to discuss what they have to offer.

Credit Unions

If your local credit union offers unsecured loans, you may find it has more flexible lending criteria than the big banks do.

Do Unsecured Loans Affect Your Credit?

Pretty much any time you borrow money, it can have an effect on your credit — and an unsecured personal loan is no exception. Here are some ways it can have an impact.

When You Apply for the Loan

When you’re shopping for a loan, lenders typically do a soft credit pull as part of the prequalification process. This shouldn’t impact your credit. But once you apply for a specific loan, the lender will do a more thorough credit check before giving its approval. That hard credit pull may or may not cause a temporary drop in your credit score.

When Your New Loan Goes Through

When you’re approved for a loan, you can expect the lender to report it to the credit bureaus. If the new loan gives you a more diversified credit mix (with both revolving and installment debt), it may have a positive impact. But it could have a negative effect if it looks as though you’re taking on too much overall debt.

When You Begin Making Payments

Payment history is the biggest factor in determining a FICO score. So if you make on-time payments on your loan, it might help your overall score. But if you make late payments or default on the loan, it could hurt your score.

If You Use the Loan to Pay Down Debt

If you use your unsecured personal loan to pay down high-interest credit card debt, it could lower your credit utilization rate, which can improve your credit score. (Your credit utilization rate is the amount of revolving credit you're currently using divided by the total amount of revolving credit you have available.)

Are Unsecured Personal Loans Safe?

If you’re working with a reputable lender, your unsecured personal loan should be as safe as any other type of loan. Using a loan comparison site can help you ensure that you’re dealing with a trustworthy lender. When shopping around for unsecured personal loans, you can look for a lender that:

Evaluates Your Credit

Yes, it’s a pain to go through a credit check, but a reputable lender will want to be sure you can pay off the loan it gives you. That helps the lender, of course, but this caution can help you, too.

Is Transparent About Its Terms

You may be able to find everything you need to know about rates, terms, fees, and penalties on a lender’s website. But if the information isn’t there, make sure you ask. If you can’t get an answer, that may be a red flag.

Has Fair Terms You Can Live With

Just because you can get a loan doesn’t mean you should accept it. By doing your due diligence, you can be more certain that you’re able to repay the loan and that the interest rate and loan length are reasonable and manageable.

Reports Payments to the Credit Bureaus

Paying on time can help your credit, and legitimate lenders make timely reports to at least one of the major credit bureaus.

Who Should Consider an Unsecured Personal Loan?

An unsecured loan can be a convenient way to access cash when you need it. And if you qualify for a low interest rate, it can be an affordable solution for consolidating debt, handling unexpected emergencies, or making home improvements and repairs.Personal unsecured loans also might be an option worth exploring if you don’t like the idea of tying an asset to a loan, or if you don’t have an asset to offer as collateral. Not having to put down collateral, being able to get the cash quickly, and having flexibility in how you can use the money may offset the higher interest rates.But while there are arguments for why you should apply for a personal loan, it isn’t necessarily the right solution for every financial need. For example, if you’re thinking about an unsecured personal loan for a vacation or some other nonessential purchase, you may want to consider whether it’s really worth making monthly payments for a couple of years or longer. And if you’re borrowing money for a major purchase, a secured loan might be a better choice as it may offer a lower interest rate.

Pros and Cons of an Unsecured Personal Loan

Before applying for an unsecured personal loan, it’s a good idea to know what the benefits of a personal loan are as well as the downsides so you can make sure the loan is the right fit for your needs and goals. Here are some things to consider:

Pros of an Unsecured Personal Loan

  • No collateral is required to secure the loan.
  • Approvals are generally faster than they are for other types of loans. (There’s no need to appraise the asset being offered as collateral.)*
  • Funds can typically be used for almost anything. (Though some lenders may have restrictions.)

Cons of an Unsecured Personal Loan

  • Interest rates tend to be higher than they are for secured loans. (But less than many credit card interest rates.)
  • Borrowing limits may be lower than they are for a secured loan.
  • Monthly payments may be higher than credit card minimum payments.
  • Some lenders may charge high fees or penalties that can make the loan more expensive.
  • Failing to make payments can hurt your credit and make it harder to borrow in the future.

What Are Some Common Uses for Unsecured Personal Loans?

Typically, you can use the funds from an unsecured personal loan to pay for just about anything. (Although some lenders may have restrictions.) Here are some common uses:

Paying Off Credit Card Debt

A personal loan can be a good way to get a handle on credit card debt if you can qualify for a lower annual percentage rate (APR) than your credit cards are offering.

Consolidating Different Types of Debt

Having just one fixed monthly payment can make getting and staying on track with debt more manageable, especially if the interest rate is better than the rates of the debts you’re consolidating. (If you’re wondering what the difference is between debt consolidation loans vs. personal loans, it’s pretty much the same thing — debt consolidation is just a common personal loan use.)

Financing Home Improvements or Repairs

A home equity line of credit (HELOC) or home equity loan may be less expensive than an unsecured personal loan. But with an unsecured loan, you won’t have to put up your home as collateral.

Paying Off Unexpected Medical Bills

There may be other options for paying medical bills. (Check with your medical provider about financing possibilities.) But if there aren’t any lower-cost alternatives available, a personal loan could help you break down an overwhelming amount of debt into manageable monthly payments and keep the debt from going into collection.

Paying for a Wedding

A wedding isn’t necessarily an “essential” expense, but using a personal loan for a wedding might be cheaper than using credit cards. And knowing exactly how much you can spend — the amount of your lump sum loan — could help you keep your costs in line. (You also could use any cash gifts you receive to help make payments.)

Comparing Unsecured Personal Loans

To find the right loan with the most competitive terms for your financial situation, you’ll want to shop around. Here are some factors to evaluate when comparing personal unsecured loans:

Annual Percentage Rate (APR)

Personal loan interest rates can range anywhere from 6.95% APR to all the way up to 35.99% APR. Because of this wide variance in potential interest rates, it’s important to shop around to see which lender can offer you the lowest rate. Keep in mind that the lowest rates are generally reserved for those with excellent credit.

Fixed or Variable Rate

You’ll also want to note whether the interest rate is fixed or variable for the unsecured personal loan you’re considering. With a fixed rate, the interest rate will remain the same over the life of the loan. A variable rate, on the other hand, fluctuates over time in response to market conditions. While variable rates may be lower than fixed rates, they won’t offer the reliability that fixed rates do. Plus, if interest rates rise, that could drive up your loan’s variable rate.

Monthly Payment

Before signing onto a loan, you’ll want to know how much your monthly payments will be. Consider whether the amount realistically fits into your monthly budget, or whether it might be a stretch to make your payments.

Time to Fund

Especially if you’re in a crunch to get the funds, you’ll want to look at the average length of time it takes for the lender to fund your loan. In general, approval times for personal loans range from one to five days, but online lenders, for instance, tend to have a shorter time to fund.

Loan Features

Beyond the basics like your interest rate and monthly payments, it’s also helpful to consider loan features when deciding between your options. For instance, you’ll want to take a look at what fees the lender may charge — a lender with no fees will certainly have an edge. Other features to take into consideration include the opportunity for rate discounts, flexibility on payments and the customer experience.

What Are Some Alternatives to Using an Unsecured Personal Loan?

Although an unsecured personal loan can be used for just about any purpose, it might not be the most affordable or convenient way to go, depending on your financial circumstances. Here are some alternatives you might consider.

Credit Cards

Credit cards generally have higher interest rates than personal loans, so this might not be the best option for a large purchase that will take some time to pay off. But if you can get a special 0% APR offer on a card, it might be worth considering. Pay attention, though, to how long you’ll have before the card reverts to its regular APR. Also find out if the 0% rate could be canceled if you miss a payment.

Personal Line of Credit

With a personal line of credit, you get access to a set amount of money that you can borrow against in the future. Instead of receiving a lump sum, you draw on the money as you need it, so it can be a convenient way to cover unexpected expenses as they come up. Plus, you don’t pay interest until you withdraw money. Just know that a borrower typically must have good or excellent credit to get an unsecured line of credit. There also may be maintenance fees that add to the overall cost.  

Peer-to-Peer (P2P) Lending

P2P lending sites connect borrowers to investors instead of traditional lenders, and the rates for applicants with good credit are often lower than comparable bank rates. Borrowers who have a poor credit profile also may have a better chance of getting a loan on a P2P site, but they can still expect to pay a high interest rate. Like other lenders, a P2P site may charge fees like loan origination fees, late fees, and bounced-payment fees.

Home Equity Loan or Home Equity Line of Credit (HELOC)

Because you’re putting up your home to secure these types of loans, you may get a better interest rate or be able to borrow more money. But the application process for a home equity loan or HELOC can take longer (the lender may want to have your home appraised before approval). And if you default, you risk losing your home.

401(k) Loan

Many workplace retirement plans allow employees to borrow money from their account. You can borrow the funds without worrying about a credit check (as long as you have enough money in your account). And while you’ll still pay interest on this type of loan, the interest will go back into your retirement account as you make your payments instead of to a lender. The downside? The money you borrow won’t be working for you, so you’ll miss out on any possible investment earnings you would have gotten.

The Takeaway

An unsecured loan is a loan without collateral. Instead of asking you to put up an asset to secure the loan, your lender will base its approval (and your interest rate and terms) on your creditworthiness. If your credit isn’t great, you may still be able to get an unsecured personal loan for bad credit, but your interest rate will likely be higher.You can use this type of loan for just about anything you want — to consolidate debt, pay an unexpected bill, or take care of some other big expense. But it’s important to remember that even though the loan isn’t secured by any form of collateral (the way a car loan or mortgage is), there still could be consequences if you miss a payment or default.That’s why if you’re considering an unsecured personal loan, it can be helpful to spend some time looking for a reputable lender that’s offering a loan with an interest rate and terms you can manage. A loan comparison site like Lantern can make shopping for a personal loan with competitive rates and other benefits faster and more convenient.Find and compare personal loan options with Lantern.
*To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit (https://www.consumer.ftc.gov/topics/credit-and-loans)SoFi’s Relay tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.SOLC0421050

Frequently Asked Questions

What are unsecured personal loans?
How much can you borrow on an unsecured personal loan?
Can I get unsecured personal loans with bad credit?

About the Author

Kim Franke-Folstad

Kim Franke-Folstad

Kim Franke-Folstad is an award-winning journalist with 30 years of experience writing and editing for newspapers, magazines and websites. Her work for SoFi covers a range of topics related to personal finance, including budgeting, saving, borrowing, and investing.
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