What is an unsecured loan?

• Unsecured loans are credit products that do not require collateral but may come with high interest rates and strict credit requirements.

• There are a variety of unsecured loans, including personal loans, student loans, and credit cards.

• When determining eligibility for an unsecured loan, lenders will consider factors such as credit history, income and credit-to-income ratio.

Unsecured loans are offered by banks, credit unions and online lenders. Unlike a secured loan, it is not backed by collateral and may be more difficult to get approved than the secured option. However, they come with less risk as you don’t need to worry about your assets being confiscated if you fail to pay.

Most installment loans are unsecured. This includes student loans, personal loans and revolving credit such as credit cards. Eligibility will vary from lender to lender, but generally you’ll need good or excellent credit and a solid source of income to qualify.

Borrowers who qualify for credit are likely to be offered the best loan terms and lowest interest rates. You can usually use an unsecured loan for almost all legal expenses.

Unsecured loans are loans that do not require collateral. They are also called signature loans because a signature is all that is required if you meet the borrower’s lending requirements. Because lenders take on more risk when the loan is unsecured, they often charge higher interest rates and require good or excellent credit to be approved.

A secured loan is different from an unsecured loan in that secured loan requires collateral. A lender will not approve a secured loan if the borrower does not agree to provide collateral as collateral.

Unsecured loans are available as revolving credit – a credit card – or as an installment loan, such as a personal or student loan. An installment loan requires you to repay the total balance in fixed, monthly installments over a set period of time.

Credit cards allow you to spend what you need when you need it. However, interest rates for credit cards are higher than for loans. If you miss a monthly payment, you will be charged interest on the principal amount.

Borrowers who need money but are not comfortable putting up collateral for a loan can be considered applying for an unsecured loan when:

• Planning a big purchase. Taking on debt can put a strain on your finances, but if you need money for a big upcoming expense, an unsecured loan can help.

• They have good credit. The high credit score opens up favorable unsecured loan terms and interest rates.

• They have a reliable income. Although collateral is not required for an unsecured loan, you will need a steady income to pay off the loan and avoid defaulting on the loan. Unpaid loans can have a negative impact on your credit.

• Debt consolidation. Unsecured loans are useful as debt consolidation tools that can make paying off debt easier. This strategy can also help borrowers save money if they qualify for lower interest rates.

There are several types of unsecured loans to choose from. However, the most popular options are personal loans, student loans and credit cards.

• Personal loans

  A personal loan can consolidate debt, finance a major purchase, pay for an ongoing project or finance a home renovation.

  There are personal loans available for almost everything, including wedding loans, pet loans and vacation loans. Technically these are unsecured personal loans (also called signature loans) where the funds will only be used for related purchases. Personal loan interest rates are generally lower than credit card rates.

  • Loan amount: About $1,000 to $50,000

  • Average interest rate:12.27% (as of March 26, 2026)

  • Payment timeline: Anywhere from two to seven years

  Who is a personal loan good for: Good lenders know exactly how much money they need.

• Student loans

  There are two types of student loans: federal and private student loans. Federal loans are a better choice for many borrowers because they carry very low rates and are available to every student attending a participating college. Private lenders offer private student loans and they come with high rates and strict eligibility requirements. These loans are best used when filling financial gaps, as they do not have the benefits and protections that federal loans provide.

  • Loan amount: Up to full cost of attendance (private loans only)

  • Average interest rate: Up to 17% (private loan), up to 8.05% (corporate loan)

  • Payment timeline: Anywhere from five to 20 years, but it will vary for each borrower

  Who is a student loan good for: Prospective and current postsecondary students supplement their need-based or merit-based financial aid.

• Credit cards

  Credit cards are one of the most common options for getting money. They are revolving credit, so funds are available whenever needed. You can borrow up to your credit limit, which is given by the lender, and you can borrow up to that limit. You can use a credit card to consolidate debt, use everyday money, or finance a major purchase or experience. However, rates can be high and interest accrues quickly if you carry a balance.

  • Credit limit: Usually between $2,000 and $10,000

  • Average interest rate: 19.58% (as of March 26, 2026)

  • Payment timeline: No timeline was mentioned

  Who is the credit card good for: People with healthy spending habits who want a revolving line of credit.

Unsecured loan options may be less risky than other types of loans for some borrowers, but not all. When taking out any long-term debt, making a fully educated decision is essential to improving financial health.

• No collateral is required.

• Quick access to funds.

• There is no risk of losing goods.

• Fewer borrowing limits.

• Competitive rates for those with strong credit.

• Risk of loss of property.

• There may be lower borrowing limits for those with low scores.

• There may be higher interest rates for those with lower credit scores.

• It is difficult to be approved.

• It has fewer borrowing options than a secured loan.

To reduce their risk, lenders want to make sure you can repay the loan. Lenders measure that risk based on several factors, so they may ask about the following information when you apply for an unsecured loan (and adjust the loan terms based on your answers):

• Your credit: Lenders check your credit reports to see how you’ve handled loans and credit cards in the past. Generally, they look for credit history (usually one year or more), on-time payments, low credit card balances and a mix of account types. They will also check yours credit scorewhich are calculated based on the information on your credit report. Consumers with FICO credit scores of 700 or higher generally qualify for the best interest rates.

• Your salary: Knowing that you have the means to meet your financial obligations, including loan payments, reduces the borrower’s risk. The lender may ask to see proof of a stable, adequate income, such as a current salary.

• Your debt to income ratio: To calculate your income-to-income ratio (DTI)add up all of your monthly debt payments and divide that total by your monthly income. Lenders use this number to measure your ability to repay the loan. The lower the rating, the better.

• Your goods: Although an unsecured loan does not require collateral, the lender may want to know that you have savings. They know that you are less likely to miss loan payments if you are prepared to cover financial emergencies.

Most lenders offer eligibilityso you can check your eligibility before applying for a formal loan.

The biggest advantage of an unsecured loan is that you don’t have to put up collateral. But if you default on a loan, you can still face serious consequences, such as serious damage to your credit. Also, the creditor can take you to court to garnish your wages.

Taking an unsecured loan can be good if you plan to pay off the debt. If you decide that an unsecured loan is right for you, compare rates, terms, and fees from as many lenders as possible before applying.

• Are unsecured loans hurting your credit score?

  As with any new loan application, applying for an unsecured loan means getting tough credit questions from the lender. This can cause your credit score to temporarily drop by 10 points, but if you pay on time, your credit score can go up over time.

• What happens if you default on your unsecured debts?

  If you fall behind on payments, your credit score will suffer. Missing too many payments can make you unable to get a loan. You may be followed by debt collectors and the creditor may sue you.

• How hard is it to get an unsecured loan?

  Anyone can apply for an unsecured loan, but those with reliable income, good credit and a low DTI will qualify for the best rates. Your ability to qualify for an unsecured loan will depend on how well you meet the lender’s eligibility requirements.