What Is an Unsecured Personal Loan?

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An unsecured personal loan is a loan that’s based solely on your creditworthiness. You don’t need to provide any collateral to “secure” the loan when you first take it out.

This guide will cover how secured loans work, who they’re best for and how to get one.

Unsecured vs. Secured Loans: The Core Difference 

The biggest difference between secured and unsecured loans is that secured loans require collateral, while unsecured loans do not.

Secured loans use collateral to minimize the risk for the lender. As a tradeoff, a lender will often extend secured personal loans to individuals with lower credit scores, since they can claim the collateral if the borrower falls behind on payments. Some specific types of loans fall under the secured loan category, including mortgages and auto loans. With each of these loan types, you’re taking out a loan to purchase a physical asset, and the asset itself — the home or car, respectively — acts as collateral.

Since there is no collateral required with unsecured loans, lenders have stricter requirements for qualifying. You’ll generally need a fair credit score of about 580 or higher, at a minimum, to qualify.

Here’s a quick breakdown of the key differences between secured and unsecured loans:

Common Types of Unsecured Loans

“Unsecured loan” is a broad category under the umbrella of personal loans. Here are some specific types of unsecured loans.

Unsecured Personal Loans

An unsecured personal loan can be used for any purpose, from general expenses to debt consolidation.

Credit Cards

Credit cards are considered unsecured loans, since you’re borrowing money against a revolving line of credit without putting up any collateral.

Student Loans

Both federal and private student loans are unsecured because neither requires collateral.

Medical Loans

Loans to pay for medical or dental expenses often don’t require collateral.

Peer-to-Peer Loans

Peer-to-peer (P2P) loans means an individual lends out money rather than a bank. The individual can set the terms, and often these loans don’t require collateral up front.

How To Qualify and Get an Unsecured Personal Loan 

Before applying for an unsecured personal loan, make sure it’s the right option for you in the first place. Here are some signs that you may or may not be the ideal candidate for this type of loan.

Who Is a Good Candidate? 

✅ Good for: 

• People with fair to excellent credit
• Borrowers who don’t own assets to use as collateral or don’t want to risk losing those assets
• Those who need funds quickly for necessary personal expenses 
• Someone who can commit to regular monthly payments 
• People looking to consolidate high-interest credit card debt 

❌ Not ideal for: 

• Borrowers with poor or no credit history 
• Anyone unable to afford fixed monthly payments 
• People with valuable assets who are willing to get a lower rate through a secured loan 
• Those who want the lowest possible interest rate 
• Individuals with unstable income or high existing debt 

Getting an Unsecured Loan: A Step-by-Step Guide

If you’re wondering how to get a personal loan that doesn’t require collateral, follow these steps:

1. Check your credit score and history: Make sure your credit score is high enough to meet lenders’ requirements. If you see any errors on your credit report, reach out to the credit bureaus to dispute them.
2. Compare lenders and pre-qualify if available: Pre-qualifying is a great way to get a sense of how much money a lender will offer you without having to do a hard pull of your credit — which will happen after you apply.
3. Gather documents: You’ll need a variety of documents to prove you have income when you apply. These include ID, proof of income and employment info.
4. Apply online, in person, or at a bank or credit union: Online lenders typically approve and fund loans faster than brick-and-mortar locations.
5. Review terms, sign the agreement and receive funds: This could take anywhere from one day to several business days, depending on the lender.

What If You Don’t Qualify? 4 Top Alternatives

If you decide an unsecured personal loan isn’t right for you or you aren’t able to qualify for one, consider one of these alternatives.

1. Secured Loans

Secured loans are a good option if your credit score isn’t high enough to get an unsecured loan. Plus, you may be able to get a lower interest rate in exchange for putting up collateral.

2. HELOCs

Home equity lines of credit are revolving lines of credit that you can borrow against, similar to how credit cards work. HELOCs are secured because your home is considered collateral.

3. Credit Builder Loans

If your credit score needs improving or you’re just getting started with credit, a credit builder loan is an option worth considering. With this type of loan, you make fixed payments to a lender and get access to the loan funds after you’ve made all payments.

Since you only get the money after paying for the loan in full, there’s no risk to the lender, but it will still report your payment history to the credit bureaus, which can improve your credit score and help you qualify for other types of loans and financial products in the future.

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