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Personal loans can be either secured or unsecured. A secured personal loan has collateral that backs the borrower’s promise to repay the loan. An unsecured personal loan does not require collateral, and the only thing backing the borrower’s promise to repay is their creditworthiness.

The collateral requirement is the main difference between secured and unsecured personal loans, but there are other differences that may inform your decision about which type of loan is best for your financial needs.

What Is a Secured Personal Loan?

A secured personal loan is a loan for which the borrower pledges collateral that the lender can take possession of if the borrower fails to repay the loan. Put in simpler terms: If you default on your car loan, for example, the bank can repossess your car. For the lender, collateral equals a certain level of security.

Collateralized loans are common for mortgage and auto loans. A home is collateral for a mortgage, and a vehicle is collateral for an auto loan. They are somewhat less common for personal loans, though.

A personal loan isn’t tied to a particular asset in most cases, so there’s not an obvious item to pledge as collateral. The asset pledged must be owned by the applicant, and the lender will evaluate its value to be sure it’s equal to the amount of money being loaned. In some cases, a physical asset such as a vehicle is put up as collateral, but the collateral could also be an asset like a savings account or certificate of deposit.

Pros of Secured Personal Loans

While it may seem like the lender benefits more with a secured personal loan, there may also be advantages for the borrower.

•   Lenders typically see secured personal loans as less risky than their unsecured counterparts because there is an asset to back the loan if the borrower defaults.

•   Borrowers may get a lower interest rate on a secured personal loan than they might on an unsecured personal loan.

•   Secured personal loans can be a good way for borrowers to build credit, as long as they make regular, on-time payments.

Cons of Secured Personal Loans

Things that a borrower might see as a drawback to a secured personal loan might be a benefit to the lender. But each party to the loan agreement takes risks.

•   The lender is able to recoup its losses by seizing the collateral if the borrower defaults on their secured personal loan. However, it may take a while to liquidate that asset. If the collateral is a physical asset, such as a vehicle, it may take some time to find a buyer willing to pay the price the lender has set.

•   For the borrower, the main drawback to a secured personal loan is the possible loss of the asset pledged as collateral if they default on their loan.

•   The application and approval process may include more steps for a secured personal loan than an unsecured one because the asset’s worth will need to be valued.

💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.

What Is an Unsecured Personal Loan?

A personal loan that is backed mainly by the creditworthiness of the borrower is an unsecured personal loan. Sometimes called a signature loan, an unsecured loan does not require any collateral to guarantee the loan.

Defaulting on an unsecured personal loan can certainly have a negative effect on the borrower’s credit, but there wouldn’t be an asset to lose in addition.

Pros of Unsecured Personal Loans

Like their secured counterparts, unsecured personal loans can have benefits for both lender and borrower.

•   Lenders may be able to charge a higher interest rate on an unsecured personal loan because there isn’t any collateral to secure the loan. (This is a drawback for the borrower — see below.)

•   The borrower won’t lose an asset if they default on an unsecured personal loan.

•   The application process for an unsecured personal loan is generally much quicker than for one that’s secured because there is no asset to be valued.

•   Funds may be disbursed the same day or within a week, depending on the lender.

Cons of Unsecured Personal Loans

It may be relatively easy to find lenders who offer unsecured personal loans, but there are aspects that may be considered drawbacks.

•   Interest rates on unsecured personal loans may be higher than for secured personal loans because there is no asset backing the loan.

•   Some lenders may have minimum credit score requirements for approval of an unsecured loan, so applicants with poor credit may not qualify.

•   If the borrower defaults, their credit score may be negatively affected.

•   Applicants with lower credit scores may not qualify for loan amounts as high as those with higher credit scores.

Recommended: Personal Loan Calculator

Choosing Between Secured and Unsecured Personal Loan

There are lots of reasons for considering a personal loan in general, but choosing between a secured and an unsecured personal loan means taking some specifics into account.

Do You Have Collateral?

One of the main things to consider when thinking about applying for a secured personal loan vs. an unsecured personal loan is whether you have an asset of value that you’d be willing to risk.

If you do have such an asset, you may want to compare lenders who offer secured personal loans. Some online lenders offer secured loans, but they’re more commonly available through banks or credit unions.

Lenders may offer higher loan amounts for a loan backed by collateral than for one that isn’t, so if you need to borrow a large amount, it might be worth looking into a secured personal loan.

What Are You Planning to Use the Funds For?

Personal loan funds can generally be used for a wide variety of things, like debt consolidation, unexpected medical expenses, home improvement costs, and more.

If you need funds to pay multiple vendors or contractors — common in the case of wedding or home improvement costs — or you plan to consolidate other high-interest debt, an unsecured personal loan might be the right choice for you.

If you plan to purchase a specific item that might be considered an asset, however, the lender may want to attach that asset as collateral on the loan, thus making it a secured loan. Examples of this might be a secured personal loan to purchase land or to buy a boat.

What Type of Lender Is Right for the Loan You Need?

Another factor to consider when choosing between a secured or unsecured personal loan is the type of lender you’d rather work with.

Unsecured loans may be available through banks, credit unions, or online lenders. Not every financial institution offers unsecured loans, however.

Secured loans are more commonly offered by banks and credit unions — it’s less common to find one through an online lender.

If you have a savings account or certificate of deposit at your bank that you’d be willing to put up as collateral, it might be worth looking into a secured loan with your current bank.


💡 Quick Tip: Generally, the larger the personal loan, the bigger the risk for the lender — and the higher the interest rate. So one way to lower your interest rate is to try downsizing your loan amount.

Qualifying For a Personal Loan

There are different factors that go into qualification for a personal loan.

Each lender may have its own credit score, income, or debt-to-income ratio requirements, in addition to other factors. If you’re applying for a secured personal loan, each lender may have its own requirements for valuation of collateral.

It’s a good idea to compare lenders so you’ll have an idea of what they commonly require for an applicant to qualify for a personal loan. With that knowledge, you can better evaluate your own credit for the likelihood of being approved — or not.

Reviewing Your Credit Report

You can get a free copy of your credit report annually from each of the three major credit bureaus: Equifax™, Experian™, and TransUnion™. It’s a good idea to check all three because not all lenders report payment history to all three bureaus. The credit bureaus don’t share information with each other, so getting a complete picture of your credit may mean looking at all three reports.

Your credit report contains personal information about you and information about past and current credit accounts in your name.

Personal information includes:

•   Name, current as well as any other names you may have gone by in the past

•   Addresses, current and previous

•   Birthdate

•   Social Security number

•   Employer

Lenders typically report:

•   The total amount of the installment loan or line of credit

•   Your record of on-time payments

•   Any missed payments

If you’ve had any bankruptcies, foreclosures, or repossessions, they will likely be included on your credit report as well.

If there is missing, incomplete, or incorrect information on your credit report, you can file a dispute with the credit bureau. It’s a good idea to clear up any errors before you start applying for a loan so you don’t have any unexpected roadblocks on the way to qualification.

If, in the process of reviewing your credit report, you find that you don’t have much of a credit history or your credit isn’t up to qualification standards, you may decide to take some time to work on improving your credit situation. That could mean increasing your income, lowering your expenses, paying down or consolidating existing debt, or just learning how to better manage your overall finances.

Recommended: How to Get Approved for a Personal Loan


The Takeaway

There are situations where an unsecured personal loan might be the right financial tool for you, and there may be others that would be better suited to a secured personal loan. The main difference between the two types of loans is that one requires collateral — a secured personal loan — and the other doesn’t — an unsecured personal loan. Deciding between the two depends on the borrower’s willingness to risk the loss of collateral, as well as their overall creditworthiness.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: 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.

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There are a variety of ways to borrow money when cash is needed. A few common places to start might be traditional banks or credit unions, or maybe a friend or family member who’s willing and able to consider lending.

If none of those options sound appealing, another option might be to borrow money online. Online lenders are becoming a more mainstream, acceptable alternative to traditional banks. What’s behind this increase in online lending, and what are some ways to borrow money online?

Why Have Online Lenders Grown in Popularity?

When lockdowns started in response to Covid-19 in 2020, people had to find different ways to do things they might have been accustomed to doing in person. Banking and other financial transactions were among those things. Brick-and-mortar banks limited access to branches or hours they were open, and retailers were hesitant to accept physical money. But transactions needed to keep happening, so consumers began moving online to complete them.

Familiarity, for Some Customers

A growing proportion of consumers is accustomed to using computers for many aspects of daily life, and making online financial transactions is no different. More people may be looking for things like:

•   Online applications.

•   Streamlined underwriting processes.

•   Automated funds transfers.

A Different Kind of Personal Service

Whereas in the past, personalization meant having a face-to-face relationship with a banker, personalization in today’s world can mean information that is relevant to an individual’s financial needs. This might look like things that can be more quickly accessed online, such as:

•   Personalized financial trends in a portfolio so they can make informed decisions about their financial goals.

•   Insights about their spending and saving so they can budget monthly income and expenses to meet their needs.

Time Saving

Customers may also want an experience that saves time. Automating tasks is a timesaver that can easily be done with online financial tools. In the case of online lending, the option to set up automatic bill payments and automate other tasks are likely to be considerations when a customer is choosing an online financial company.


💡 Quick Tip: Some lenders can release funds as quickly as the same day your loan is approved. SoFi personal loans offer same-day funding for qualified borrowers.

Where to Borrow Money Online

When looking for an online lender, you may want to consider the reputation of the lender, safety precautions the lender has in place, or types of loan products offered. In addition, each person should determine their individual comfort level of doing business with or without personal interaction.

Banks

A traditional bank may be a good option for someone who is more comfortable sharing private financial information at an in-person meeting or who doesn’t know how to borrow money online.

Applying for a loan through a traditional bank might include a visit to a brick-and-mortar branch of the bank along with online components, making this a hybrid approach. Since traditional banks have upkeep costs related to physical locations, their fees or interest rates might be higher than other lending options.

Recommended: How to Get Approved for a Personal Loan

Credit Unions

Similar to banks, credit unions generally have physical locations, but may also have online services. Financial services offered by credit unions are similar to banks and other financial institutions. There are usually specific requirements to be a member of a credit union, such as employment-related or residence in a particular region, or membership in a particular group. Credit unions may offer member benefits such as low fees, high savings rates, and low loan rates.

Peer-to-Peer Lending

Peer-to-Peer (P2P) lending is akin to matchmaking. A prospective borrower submits an application with an online marketplace, which matches the applicant with investors. Some online marketplaces for P2P lending are Prosper, Upstart, and Peerform. P2P lending may be a good place to look for an online loan for someone who isn’t able to qualify for a loan from a conventional lender, or if an alternative funding source is preferred.

Recommended: What Are Personal Loans Used For?

Online Lenders

The lack of brick-and-mortar branches might deter some customers but attract others. The deciding factor for some customers might be how well the process works for them, with less emphasis on having a face-to-face interaction.

Another factor in choosing online lending over in-person may be the speed of the process. Online loans and other financial transactions can sometimes be completed faster than going into the physical location of a traditional lender. This may be important for people looking to borrow money online instantly.

Options to Think Twice About

Along with favorable options for lending that are available, there are some that may not bring about the best financial outcomes.

Credit Cards

At its core, a credit card is a short-term loan — specifically, a line of credit. If the account balance is paid in full before each month’s due date, it’s a no-interest loan. Financial drawbacks arise, however, when that balance is not paid in full each month, carrying over a balance due.

Credit card interest rates tend to be high, and they accrue on any unpaid balance, compounding what is owed in the next billing cycle. The average credit card annual percentage rate (APR) is currently 24.45% for new credit card offers. Even for existing customers, the APR is high, at an average of 20.68% currently. It’s easy to see how this can lead to a cycle of debt. Paying off a loan over time is probably more efficiently done with other financial tools.

Recommended: Personal Loan Calculator

Predatory Lenders

When people look for fast cash, there is probably someone out there who is willing to lend it to them — at a cost. If it seems like there is no other choice available, some people may take on a loan that can be difficult to pay off. Repeat borrowing is common with these types of loans.

•   Payday loans are short-term loans, typically to be paid off in the borrower’s next payday. Interest rates are extremely high, often 400% or more.

•   Title loans or pawn loans use a borrower’s vehicle or other item of value as collateral. The APR on a title loan can be as much as 300%, and lenders often charge additional fees.

💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.

The Takeaway

Choosing a lender depends on different factors for different people. Traditional lenders, online lenders, alternative lenders — each can be a valid choice for different financial needs. With online lenders becoming more commonplace, with established reputations in the financial marketplace, looking at options among them might be a good choice.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: 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.

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If you don’t have a bank account, either because you prefer to pay in cash or due to a poor banking history, you will likely run into a few obstacles when trying to get any type of loan, including a personal loan.

While it’s not impossible to get a loan if you don’t have a bank account, it can be difficult to get approved, will likely cost more in interest and fees, and may require collateral to guarantee the loan. However, if you need money fast, there are options available. Here’s a look at how to get loans without a bank account.

Is It Hard To Get a Loan With No Bank Account?

Generally, yes. Not having a bank account — in particular, a checking account — can make it difficult to qualify for a loan.

When you apply for a personal loan (or any other type of loan) the lender will typically ask for your bank account information and the last one to three month’s worth of bank statements. This helps them verify your income and gives them an idea of whether you have the cash to keep up with your loan payments.

However, if a financial emergency arises and you need money quickly, there may be loan options available that do not require a bank account. The hitch is that these loan products typically come with high interest rates, multiple fees, and short repayment terms.

Why Is Getting a Loan With No Bank Account Hard?

When a lender assesses an applicant, they consider how risky the loan might be to their own business. In other words, they want to predict how likely it is that the borrower will be able to pay the loan back. When a loan applicant doesn’t have a bank account, the lender has more difficulty assessing that person’s income or cash flow.

There is also a logistical issue: Where should the lender send the loan proceeds? Typically, the money is sent to the borrower’s bank account. But if the borrower doesn’t have a bank account, there may be some question of where the money will be deposited and how it will be accessed, as well as how loan payments will be made.

Can You Get a Loan With Bad Credit and No Bank Account?

It’s possible but it might not may not be a good idea, since your options will be limited and expensive.

To assess your risk as a borrower, lenders will not only look at your banking history but also your credit history and scores. Your credit reports contain a record of how you’ve handled credit accounts in the past, including whether you pay your bills on time, what types of credit you use, how much debt you carry, and any delinquencies and collections you’ve experienced. This information is used to calculate your credit scores. Borrower’s with excellent credit are not only more likely to qualify for a loan, but also get the best rates and terms.

If you have poor credit and no bank account, you will likely be seen as high risk to lenders. If you’re applying for an unsecured loan (meaning no collateral is required), you may not be approved.

You might, however, be eligible for a secured loan that’s backed by collateral, such as a car or other asset of value that you own. If you are unable to repay the loan as promised, the lender has the right to take that collateral as payment on the loan.

Pros and Cons of Loans With No Bank Account

If you’re looking for a loan with no bank account, you’ll want to carefully consider the pros and cons.

Pros of No Bank Account Loans

•  Fast access to cash No bank account loans, such as payday and title loans, typically provide a lump sum of cash right away.

•  No credit check Some no bank account loans won’t take your credit history or score into account, allowing borrowers with bad credit or who haven’t yet established any credit to access funds.

Cons of No Bank Account Loans

•  High costs Lenders who consider applicants with no bank account generally make up for risk by charging extremely high interest rates and fees.

•  Short repayment terms Unlike other types of personal loans, which usually give you years for repayment, no bank account loans (such as title loans and payday loans) often need to be paid in 30 days or less.

•  Can lead to vicious debt cycle Due to the short repayment terms for no bank accounts loans, borrowers often need to roll the loan over into a new short-term loan, leading to a cycle of debt.

5 No Bank Account Loan Options

Even if you don’t have a bank account, you may be able to access a loan. Here’s a look at some potential options.

1. Borrowing Money From Loved Ones

If you’re having a hard time financially, your loved ones may be able to step in. Whether you ask for money from friends or family members, it’s a good idea to have clear, written loan terms, and maybe even have the loan agreement notarized so there’s no confusion. Make sure expectations are clear for each party.

•   Does the loan have interest attached?

•   Are you expected to pay back the loan or is it a gift?

•   Are there in-kind options for paying back the loan, such as babysitting or tutoring hours?

•   What would happen if you were not able to pay back the loan?

Answering these questions can help create clear expectations and lessen the chance of a misunderstanding that could strain your relationship.

2. Payday Loan

A payday loan is usually for a small amount (often $500 or less) for a short period of time, typically until the borrower’s next paycheck. While it can be a source of quick cash, payday loans are problematic, given their high annual percentage rates (APRs).

Some states may cap the maximum allowable APR, but many payday loans charge fees of $10 to $30 for every $100 borrowed. A fee of $15 per $100 equates to an APR of almost 400%, which is significantly higher than the APR of a typical personal loan. If you can’t pay back your payday loan quickly, the fees can add up fast and make your existing financial problems snowball.

Risks of Payday Loans

The drawbacks of a payday loan may outweigh the benefits, and include:

•  High fees Lenders charge exorbitant fees and APRs for payday loans just in case the loan can’t be paid off.

•  Debt spiral If you can’t repay your payday loan on time, you’ll have to roll it over into a new loan and end up with even more fees and interest charges. This makes the loan even harder to pay back and can lead to a dangerous debt spiral.

•  Small loan amounts If you need a large sum of cash, a payday loan likely won’t offer enough, since they are usually $500 or less.

3. Title Loans

If you own your vehicle, you may be eligible for a title loan. Also called an auto title loan or vehicle title loan, this type of loan uses your vehicle as collateral. The lender holds your vehicle title in exchange for the loan. You then may be able to borrow a portion (often 25% to 50%) of the vehicle’s current value. As with payday loans, interest can be exceptionally high — as much as 300% — and there may be additional fees. If you are unable to pay back the loan, the lender has the right to take ownership of your vehicle. This can be a high-stakes situation for borrowers who depend on their car to go to work and school.

4. Pawn Shop Loan

If you have a valuable piece of jewelry, an antique, or other collectible to use as collateral, you might be able to get a pawn shop loan. The pawnbroker will assess the value of the item and provide a loan based on a certain percentage of its value. The loan terms will include interest. If the loan isn’t paid back according to the terms, the pawnshop then owns your item and can sell it.

5. Cash Advance

A cash advance is a short-term loan typically offered by your credit card issuer. A credit card cash advance allows you to borrow a certain amount of money against your card’s line of credit. You can usually get the cash at an ATM or through a bank teller.

A cash advance is a way to access quick cash but the interest rate will likely be higher than your card’s standard purchase APR, and higher than interest rates on personal loans. In addition, you typically need to pay a hefty cash advance fee.

Loan Options With a Bank Account

Before looking into loan options with no bank account, you may want to consider opening a checking account. If you’ve had past checking account errors or misuse, look into a second chance checking account. These accounts are designed to help people who have negative banking history get back in the door.

Borrowers with bank accounts generally have more — and better — loan options available to them. If you are able to open a checking account, here are types of loans you may be able to access.

Personal Loans

A personal loan is a lump sum of money borrowed from a bank, credit union, or online lender that you pay back in regular installments over time. Loan amounts can be anywhere from $1,000 to $50,000 and repayment terms range from two to seven years. Personal loans have fixed interest rates, so the monthly payment is the same for the life of the loan.

Personal loans are typically unsecured, meaning they’re not backed by collateral. Instead, lenders look at factors like credit score, debt-to-income ratio, and cash flow when assessing a borrower’s application.

You can generally use a personal loan for almost any purpose, including debt consolidation, home improvement projects, medical bills, emergencies, and refinancing an existing loan.

Auto Loan

An auto loan is a loan that is used specifically to purchase a vehicle. They are available through banks, credit unions, and online lenders. Typically, auto loans are secured loans, which means the vehicle to be used as collateral for the loan.

When you take out an auto loan, the proceeds go to the vehicle’s seller to cover the cost of the vehicle. You then make monthly payments to the lender for a set period of time, which might be anywhere from three to eight years. The lender owns the car and holds the title until you pay off the loan. If you fail to keep up with payments, the lender can repossess the vehicle.

Student Loans

A student (or education) loan is a sum of money borrowed to finance college expenses, including tuition, supplies, and living expenses. Payments are often deferred while students are in school and, depending on the lender, for an additional six-month period after earning a degree.

Student loans are available from the government as well as through private lenders. Federal loans may have lower interest rates, and some also offer subsidized interest (meaning the government pays the interest on the loan while a student is in college). Private student loans are generally available in higher amounts.

The Takeaway

Getting a personal loan with no bank account may be possible but can be both costly and risky. Before committing to a lender that charges high interest and fees or requires collateral, you may want to explore opening a bank account.

Once you have a checking account, you may be able to access traditional personal loans with more attractive rates and terms. You might also want to consider a SoFi Personal Loan. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Can you get a loan without a bank account?

It’s possible, but you will likely be limited to loans with sky-high rates and short repayment terms, such as payday loans, pawn shop loans, and title loans. The lender may also require collateral (an asset you own, such as a car) that they can seize if you don’t repay the loan.

Can you get a loan with your SSN?

Having a Social Security number (SSN) can make getting a loan easier, since a lender can use it to retrieve information they need to process the loan. In addition to an SSN card, you also typically need to provide:

•  An additional proof of identity (such as a birth certificate, driver’s license, passport, or certificate of citizenship)

•  Proof of income (e.g., pay stubs, tax returns, and bank statements)

•  Proof of address (such as a utility bill, rental agreement, bank/credit card statement)

Can you get a cash advance without a bank account?

It’s possible, but it may be hard to find a lender who is willing to work with you. Your best option might be a credit card cash advance, which involves withdrawing cash from an ATM or bank using your credit card account. Just keep in mind that credit card advances generally come with high interest rates and fees.

Another option for fast cash might be a payday or title loan. Some lenders who offer payday and title loans might consider applicants who don’t have bank accounts but, to offset the risk, may require collateral (such as a car) they can take if you fail to repay the loan.

Photo credit: iStock/MicroStockHub

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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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? We’ll dive into exactly what an unsecured personal loan is, the benefits of an unsecured personal loan, and how to choose the best loan for your situation.

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 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.


💡 Quick Tip: Some personal loan lenders can release your funds as quickly as the same day your loan is approved.

What Are 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, the average credit card interest rate is 28.02%. Personal loans, on the other hand, charge an average interest rate of 11.31 (if you have a high credit score, you may be able to get a 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.

What Are Some Different Types of Unsecured Loans?

The most common types of unsecured loans include:

•   Personal loans Personal loans are typically unsecured, though some lenders offer secured options. Loan amounts range from $1,000 to $50,000, with repayment terms of two to seven years. 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.

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 an 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.

Applying 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 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.


💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.

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, mortgage, or car title loan), 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. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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Congrats: You did it! You got through some tough training for your career in medicine, and now you are going to find out where you’ll start your career as a full-fledged doctor. It’s an exciting moment as you wait to hear about your residency.

However, because residencies are spread across the country, there’s a good chance that you’ll not only be starting an intense new job; you will also be moving and getting settled in a brand new town.

Moving can mean major stress on its own, but moving at the very end of medical school can heighten that. After all, new doctors have an average of $202,453 in debt from their education, and moving can cost money. Learn about how to finance this important next step here.

Residency Relocation Costs

There’s no way around it: Moving is expensive, and residency relocation costs can add up.

•   There’s the move itself. Even if you’re moving to a new house in the same city to be closer to your work, you may need to hire movers or rent a truck, buy boxes, and get help packing. Plus there are those unexpected moving costs, such as replacing little things like shower curtains and cleaning products that seem to always get lost in the move.

The average cost of moving locally is $1,500, and a long-distance move can be $4,000 or more. That’s a significant chunk of change.

•   Even if you follow moving tips to economize during the process, guess what? The expense of settling into a new city can be even higher. You will likely need to put down a security deposit if you are renting, as well as possibly update your furniture and equip your new place with essentials like trash cans, towels, and cooking supplies.

•   Another thing to include in your budget: the costs of exploring a new city and eating out while you set up your kitchen. And don’t forget any expenses you may have to incur for your new job, like clothes, or potentially even transportation costs.

Plus the cost of living may be higher than what you are used to. Those little expenses can add up to a major headache if you’re not prepared.

If you’re feeling the pinch, there are a few loans specially designed for medical residents that may be worth considering. They could help make your transition a lot smoother.


💡 Quick Tip: Some personal loan lenders can release your funds as quickly as the same day your loan is approved.

Medical Residency Relocation Loans

Here are some options that can help you out financially when you relocate for a residency:

•   One loan new doctors may choose to take out is a medical residency relocation loan. You can take out a residency loan from a private lender — for example, a Sallie Mae Medical Residency and Relocation Loan.

•   Or it could be as simple as taking out a personal loan. Some private lenders may offer student loan-type benefits for loans to be used for medical residency relocation, such as a longer loan payoff term (though you may pay more in interest over the life of the loan if you opt for an extended term).

Residency loans may be specifically geared toward new doctors who are beginning their residencies and need to pay for essentials while settling into a new job and a new city. These loans can allow medical residents to fill the financial gap between graduation and your first residency paycheck.

They can help new residents cover the cost of moving and getting settled in a new city, including providing for your family while you adjust to a new job. For instance, if you’re making a move for residency and bringing your family along, it is likely that your spouse will also need to look for a job in your new city, which means that they may be giving up a paycheck temporarily as well.

Recommended: How to Qualify for a Personal Loan

Home Loans for Medical Residents

Another aspect of your finances to consider is whether you rent or buy the next place you live. Here are a few important points to consider as you embark on your career.

•   As a medical resident, you might qualify for a home loan designed specifically for doctors. These loans can have some big benefits, like low down payments, no requirement for private mortgage insurance, and no rate increases on jumbo loans. It’s important to do some research to see how you can qualify for these loans.

•   Of course, there are things to consider before buying a home during your residency. Even if you qualify for a home loan for medical residents, you might not be ready to buy a home just yet. This is especially true if you’re moving to a new city or state and you want to settle in, find your favorite neighborhood, and make sure you really like the city before deciding to buy a home.

•   If you do decide to start the home buying process, it’s probably a good idea to check out both traditional mortgages and loans designed specifically for doctors. You won’t know which one is right for you until you compare the benefits of each.

When both partners transition to new jobs at the same time, there can be a significant gap in income. A medical residency relocation loan can help you maintain your lifestyle while you and your spouse acclimate to new jobs.

Getting Ready to Get a Loan

If you’re thinking of getting a loan for relocation costs or to purchase a home, you may want to do some financial housekeeping. Here are a few moves to make:

•   Check your credit score, and see if there may be ways to build it, if necessary. A higher score can earn you the best (meaning lower) interest rates.

•   Determine exactly how much money you may need to borrow. Like all loans, consider only borrowing the amount you actually need to tide you over until your residency starts paying.

You can get a good idea of how much you may need to borrow by taking a look at your monthly expenses and then adding any additional cost-of-living increases based on your new city and the cost of moving. Don’t forget to list one-time expenses like a security deposit for a new apartment.

•   When you’ve figured out how much you want to borrow, take some time to shop around for a loan whose terms work for you. Each lender has different terms and benefits, so make sure to understand them fully before making a decision on if a personal loan is right for you.

Recommended: Can I Take Out a Personal Loan When Unemployed?

The Takeaway

Becoming a doctor can be a challenging and rewarding path. As you embark on your residency, you may find that there are significant relocation and housing expenses. Depending on your situation, you may want to review your loan options to see if there’s a good fit. For instance, a personal loan might allow you to cover the cost of setting yourself up in a new place for your medical residency.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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 .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: 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.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

External Websites: 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.

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