The term “unsecured personal loans” might not make you feel too secure about taking one out.
After all, if you’re looking to borrow money, you’re probably already in a skeptical mindset. And you should be. There’s a lot of shady lenders out there looking to lock you into a bad loan agreement.
Here’s the good news: Although they might have an unfortunate name, unsecured personal loans can also be found from reputable lenders. Before we address how to find one, let’s first review why the loan is called “unsecured” in the first place.
The basics of unsecured personal loans
There are many differences between secured and unsecured loans. The key distinction is that because unsecured loans don’t require you to hand over collateral, you’re shifting the risk to the lender. Because of that, they charge you a higher interest rate.
Receiving a good interest rate on unsecured personal loans is possible. It usually requires having a strong credit history and low debt-to-income ratio. Your application could be helped by including a cosigner, too.
The other notable difference between secured and unsecured loans is how the loan is handled when you’re unable to repay it. A secured loan gone bad means your lender could keep the collateral. This is why a secured loan is more dangerous. It could cost you a personal asset like your car.
But if your unsecured loan goes unpaid, the lender will have to recoup their losses in another way. They could send the unpaid debt to a collections agency or, worse, attempt to garnish your wages by taking you to court. This isn’t an ideal outcome either, but unsecured loans typically give you more time to get back on track than a secured one.
How unsecured personal loans work
Because you’re not providing your lender with collateral, you’ll receive an unsecured personal loan based on your creditworthiness. Lenders use this factor to determine how likely you are to pay back the loan.
Your credit score is a driving force in determining your interest rate. In fact, borrowers with excellent credit scores (between 720 and 850) receive average rates between 10.30% and 12.50%, according to ValuePenguin. Meanwhile, borrowers with average credit scores (640 to 679) could receive rates between 17.80% and 19.90%.
Once you receive the loan amount in one lump sum, the clock starts ticking. Your interest rate and loan term will decide your monthly payment. A fixed rate would keep your monthly payment static, but a variable rate could cause your payment to increase or decrease over time. This means that finding a low, fixed rate offers the safest route to repaying unsecured personal loans.
Say you borrow $5,000 at a fixed rate of 18.00% and are slated to pay it back in three years. You would pay $181 per month for 36 months. Because of accruing interest, it would cost you $6,507 to borrow that original $5,000.
As with any loan, it’s important to borrow only if you need to. You’ll also only want to borrow the amount you need, and not a penny more. That’ll make repayment as manageable as possible.
How to shop for unsecured personal loans
Before shopping around for unsecured personal loans, figure out exactly what you want from your lender. You should at least have a sense of:
- How much you need to borrow
- How much you can afford to repay each month
- How long it will take you to repay the balance
When you have those pieces of information handy, use our personal loan calculator to find loan terms that could work for you.
You can compare lenders based on these details:
- Loan amount
- Interest rate
- Repayment term
- Monthly payment
You might be happy with a $5,000 loan amount and three-year loan term, for example. But you might shy away from a high interest rate and the monthly payment it would dictate.
Remember: The stronger your credit score, the more you can dictate lenders’ offers.
As you shop around, limit the effect on your credit report by submitting only to a soft credit check. If you’re applying for a preapproval — not the loan itself — most lenders won’t do a hard check. The lender might not make this distinction obvious on the loan application or its website FAQs, so ask about their credit review policies before proceeding.
Once you have preapprovals in hand from contending lenders, you might take their loan offers back to our personal loan calculator. Then, you’ll be able to separate the best offer from the rest.
How to find top lenders for unsecured personal loans
It’s fine to start your search for lenders on Google or another search engine. But watch out for the red flags of shady personal loan companies. These might include extremely high rates, hidden fees, and inflexible loan terms.
If you do find a lender that offers the loan terms you’re seeking, do a background check on the company. You can use crowdsourced review sites like TrustPilot to ensure the lender hasn’t been accused of scamming customers. You could also test the lender’s customer service. If they’re slow to respond or are unhelpful, you might take your business elsewhere.
If you started with a search engine and found a loan offer you like, compare its preapproval offer with traditional lenders’ offers. Personal loans, unsecured or otherwise, can be found via local and national banks, nonprofit credit unions, and online companies.
Each type of lender offers something different. SoFi, one of our recommended personal loan companies, forgives a late fee if you’ve made three straight timely payments. Earnest, to name another example, offers personal loans without any origination, late, or early-payment fees.
No two lenders offer the same exact perks. Plus, you might value a loan feature that another borrower couldn’t care less about. That’s why it’s important to find the right lender for your situation. If you have a solid credit score but are still working on advancing your career, for example, you might appreciate a lender like Upstart, which takes your earning potential into account.
Consider your unsecured personal loan options
Borrowing money should likely be your last resort because it requires taking on debt. If you’re in a bind, there are quick-cash alternatives to taking out a loan.
But if borrowing is your best or last remaining option, you might find that an unsecured personal loan is the best way to do it. That could be the case if you have the credit score to land a low interest rate, plus the regular income to make your monthly payments with ease.
If you’re unsure about whether borrowing is right for you, review the pros and cons of unsecured personal loans before making your decision.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|5.81% – 15.37%1||$5,000 - $100,000||Visit SoFi|
|6.87% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|5.49% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|