Unsecured personal loans are loans provided by banks, credit unions, and online lenders that do not require any type of collateral. They provide an opportunity to borrow funds without putting any of your assets (like your home or car) at risk. The funds can be used for virtually any purpose, including debt consolidation, home improvements, and large purchases.
How do you know if an unsecured personal loan is the right choice for you? Learn the full story here.
Table of Contents
Key Points
• Unsecured personal loans are loans that don’t require collateral and can be used for various purposes like debt consolidation, home improvements, and large purchases.
• They are provided by banks, credit unions, and online lenders, and the loan amount and interest rates are typically based on factors like income, credit scores, and borrowing history.
• Common uses for unsecured personal loans include credit card payoff, debt consolidation, medical expenses, and home improvement projects.
• Unsecured loans offer benefits such as fast processing time, consistent payments, lower interest rates compared to credit cards, flexibility in usage, and no collateral requirement.
• When applying for an unsecured personal loan, it’s important to check your credit score, research and compare lenders, and provide necessary personal and financial information during the application process.
What Is an Unsecured Loan?
An unsecured loan is a loan that is not backed by collateral, such as your home, bank account balances, or vehicle. To have a loan backed by an asset (aka a secured loan) means that a bank or lender has the right to take that asset in the event of default on the loan.
Loans backed by collateral (such as mortgages, home equity loans, and auto loans) generally pose less risk to lenders — if the borrower defaults, they can recoup the balance due by seizing the collateralized property. Because unsecured loans pose a higher risk, they tend to have higher interest rates and come in lower loan amounts compared to secured loans.
Some borrowers, however, prefer unsecured loans, since they don’t require you to put your home, car, or other personal assets at risk. You qualify for an unsecured personal loan strictly on your ability to repay the borrowed amount. Lenders assess this by looking at your income, credit scores, and borrowing history.
Top Common Uses for Unsecured Personal Loans
Unsecured personal loans can be used for a wide array of purposes. Here are some of the most common reasons why people take out unsecured personal loans.
Credit Card Payoff
Credit cards tend to have high annual percentage rates (APRs). Currently, in the first half of 2025, the average credit card interest rate is about 24.20%. Personal loan interest rates, on the other hand, can charge half that figure (if you have a high credit score, you may be able to get an even lower APR).
Using a personal loan to pay off credit card debt can potentially help you save money on interest. You can get an estimate of the potential savings of using an unsecured personal loan to pay off a credit card balance by using a personal loan calculator.
Debt Consolidation
If you make many different credit card (or other debt) payments every month, it can be difficult to keep track of all the due dates and minimum amounts owed. If you miss a payment or don’t pay at least the amount due, you can get hit with late fees and your credit could be negatively affected.
Debt consolidation is the process of taking out an unsecured personal loan and using it to pay off multiple debts, leaving you with just one monthly payment. This simplifies repayment and, if you get a loan with a lower interest rate, could also help you save money.
Medical Expenses
Unsecured personal loans can be used to pay for a range of medical treatments, including elective procedures, fertility treatments, prescriptions, surgeries, dental procedures, and more.
A number of lenders, including certain banks, credit unions and online lenders, offer personal loans that can be used for medical expenses. Though interest expenses will add to the total cost of treatment, this can be a less expensive option than putting the medical expense on your credit card.
Home Projects
Whether you’re thinking about updating your kitchen or renovating a bathroom, you may be able to use an unsecured personal loan, also called a home improvement loan, to obtain funding for the project.
An unsecured personal loan can be especially useful if you need cash quickly for critical repairs or emergencies. It also provides an alternative to taking out a home equity loan or line of credit for remodeling or repairs, both of which are secured loans and require equity in your home.
Major Purchases
Other large purchases could be funded by a personal loan. This could mean that you are buying tangible items, such as new furniture for a family room or a new water heater. Or you might want to finance a wedding or a big vacation.
Emergency Expenses
A personal loan could be a way to finance a major car repair bill, replace e home heating system that conks out during a cold spell, or other urgent emergency expense. It could also keep you a float if, say, one spouse has lost a job but you still qualify for a loan.
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What Are Some Different Types of Unsecured Loans?
The most common types of unsecured loans include:
• Personal loans Personal loans are typically unsecured vs. secured personal loans, though some lenders offer secured options. Loan amounts range from $1,000 to $50,000 or $100,000 (and occasionally more), with repayment terms of two to eight years. (Some lenders may offer longer terms for large loans.) Interest rates are typically fixed.
• Personal lines of credit A personal line of credit is a revolving loan, which means the loan can be spent, repaid, and spent again, similar to a credit card. While some credit lines are secured, many lenders offer unsecured options. Personal credit lines typically have a variable interest rate.
• Student loans Education loans are used to cover the cost of college tuition and expenses. Both federal and private student loans are unsecured. However, student loans usually carry more restrictions and payback instructions than other types of unsecured loans.
• Credit cards Like a personal credit line, credit cards are a type of revolving loan that lets you access money up to a certain limit as you need it and only pay interest on the amount you borrow. While secured credit cards are available, most consumer cards do not require collateral to access a line of credit in this way.
Why Choose an Unsecured Personal Loan?
Here’s a look at some of the benefits of unsecured personal loans.
• Fast processing time It often doesn’t take long to get the lump sum of money in your hands — often just a few days or so.
• Consistent payments Personal loans are a type of installment loan, which means payments will be fixed and follow a set schedule.
• Less costly than credit cards With good credit, interest rates on unsecured personal loans are typically lower than interest rates on credit cards.
• Flexibility An unsecured personal loan can be used for almost any purpose, including credit card consolidation, a large purchase (like a kitchen appliance), a wedding, travel, medical expenses, home repairs, and more.
• No collateral You don’t need to put anything of value at risk of repossession in order to secure the loan.
How to Apply for an Unsecured Personal Loan
Before you apply for an unsecured personal loan it’s a good idea to check your credit score, since it will play a role in your loan eligibility and interest rate.
Next, you’ll want to research and compare lenders, including banks, credit unions, and online lenders. It can be a good idea to compare loan amounts, interest rates, terms, and fees. Also check loan requirements, if they are available. Some lenders have a minimum credit score or income requirements.
In some cases, you may be able to pre-qualify for a personal loan, which lets you see the loan terms you may qualify for. This involves a soft credit check, which won’t impact your credit.
Once you find a loan you like, it’s time to officially apply. Often, you can do this online, though some lenders may require you to apply in person. Either way, you’ll need to provide personal and financial information (such as your name, home address, and employment information). In addition, you may need to provide the following documents:
• State-issued photo ID
• Proof of residence
• Proof of income (like a bank statement or pay stub)
• Tax return
Once you submit your application, you may receive a decision within a few minutes or a few days, depending on the lender. In some cases, the process may take a week or more.
What Lenders Look for in Unsecured Loan Applications
If you’re applying for an unsecured loan, lenders tend to look for the following, among other factors:
• A strong credit score. While some people with a score of 580 or higher can qualify for a loan, most lenders look for a score of 700 or above to start to offer their most favorable interest rates and terms to lenders.
• A favorable credit history. In other words, prospective lenders want to know that you’ve handled debt responsibly in the past. If you have events like bankruptcy in the past, a lender may hesitate or charge you higher interest rates.
• Financial factors. Lenders will want to see that your earning power and debt-to-income ratio, or DTI, are in the right balance to allow for repayment of the loan.
Unsecured vs Secured Personal Loans: Key Differences
The key difference between unsecured and secured personal loans is that, with a secured loan, you provide a form of collateral to secure the loan. This could be money in the bank, a vehicle, investments, or art and collectibles. The idea is that the lender knows they could claim that item if you were to default on the loan.
This makes lending less risky for them. For this reason, it could help a loan seeker who has a less than ideal credit history qualify, even if they can’t access an unsecured loan. With an unsecured loan, you don’t put up any collateral. Instead, factors like your credit history, income, and assets typically reassure the lender that you are not a risky borrower.
The Takeaway
For some of life’s many curveballs — or opportunities — the occasional need for an unsecured personal loan might come up. Unlike a secured loan (like an auto loan or mortgage), an unsecured personal loan doesn’t require you to provide anything of value to guarantee it. You qualify based only on your ability to repay the borrowed amount to the lender.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
FAQ
What credit score do I need for an unsecured personal loan?
According to the credit bureau Experian®, you need at least a credit score of 580 to qualify for an unsecured personal loan, and a score of 700 or higher to get the most favorable rates and terms.
How much can I borrow with an unsecured personal loan?
Unsecured personal loans can offer a lump sum of anywhere from $1,000 to $100,000 or even more, depending on the lender’s guidelines and the borrower’s creditworthiness.
What are the disadvantages of unsecured loans?
Disadvantages of unsecured loans for borrowers can be that they may be harder to qualify for or charge higher interest rates than secured loans. The reason: They may be riskier for lenders, since if the borrower defaults, the lender doesn’t have a form of collateral to claim and use to offset their loss.
How long does it take to get approved for an unsecured loan?
The timing of getting approval for an unsecured loan can vary depending on the borrower and the lender. At its fastest, it could happen within a day. At the other end of the spectrum, it might take a week or two.
Can I pay off an unsecured loan early?
Yes, you can usually pay off an unsecured loan early. This can help you save on interest fees, but check your lender’s policies. You might owe what’s known as a prepayment penalty, a fee which goes to the lender. This feel helps compensate the lender for the loss of the previously projected interest they would have collected over the life of the loan.
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