What Is an Unsecured Personal Loan?

Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.
- An unsecured loan is a loan you get from an online lender, bank or credit union that doesn’t require collateral.
- Unsecured loans can be used for almost anything, including paying for large expenses or consolidating debt.
- Approval for an unsecured loan is based on your credit score, credit history and debt-to-income ratio.
What is an unsecured loan?
How do unsecured loans work?
What can you use an unsecured loan for?
Pros and cons of unsecured personal loans
Pros
Faster approval.
No collateral required.
Cons
Higher rates.
Could hurt your credit.
Pros of unsecured loans
- Faster approval: Expect to get your money more quickly with an unsecured loan than with a secured loan, which may require additional documents such as proof of title for a car.
- No collateral: Unlike with a secured loan, the lender can’t take your property if you stop making payments on an unsecured loan.
Cons of unsecured loans
- Potentially high rates: Unsecured loans are riskier for lenders than secured loans and therefore can have higher interest rates, especially for bad-credit borrowers.
- Default consequences: If you default on an unsecured loan, your credit score will be negatively affected. The remaining loan balance can be sold to a debt collection agency, prompting collections calls from an unfamiliar company, and you may be sued in an attempt to collect on the debt.
Where can I get an unsecured loan?
How to qualify for an unsecured personal loan
How to apply for an unsecured loan
- Check your credit. Check your credit report for any incorrect information, such as accounts that are incorrectly reported as delinquent or the same debt listed more than once, that could be dragging down your score.
- Pre-qualify. Many lenders offer pre-qualification, a short process that involves submitting basic personal information and getting a preview of the loan you may receive within minutes. Pre-qualifying won’t hurt your credit score. You can pre-qualify with NerdWallet for free to see offers from multiple online lenders.
- Compare loan offers. Compare the offers from pre-qualification to select the option that’s best for you. The loan with the lowest APR is generally the best option, since it represents the least expensive loan.
- Submit a formal application. Once you’re ready to apply, gather documentation, such as W-2s and bank statements, and complete an application with the lender you’ve chosen. The lender will perform a hard credit check at this time. Most lenders make approval decisions within a couple of days and can fund a loan within a week.
What happens if you default on an unsecured personal loan?
Article sources
- 1. National Bureau of Economic Research. Prodigals and Projecture: An Economic History of Usury Laws in the United States from Colonial Times to 1900. Accessed May 2, 2025.
- 2. Federal Register. Federal Interest Rate Authority: A Rule by the Federal Deposit Insurance Corporation on 07/22/2020. Accessed May 2, 2025.
- 3. Consumer Financial Protection Bureau. Truth in Lending Act (TILA) examination procedures. Accessed May 2, 2025.
- 4. Center for Responsible Lending. Payday and Other Small Dollar Loans. Accessed May 2, 2025.
- 5. Federal Reserve. Military Lending Act. Accessed May 2, 2025.
- 6. Center for Responsible Lending. Unsafe Harbor: The Persistent Harms of High-Cost Installment Loans. Accessed May 2, 2025.
- 7. Consumer Financial Protection Bureau. What is a payday loan?. Accessed May 2, 2025.
- 8. Internal Revenue Service. Retirement Topics - Plan Loans. Accessed Apr 8, 2025.
- 9. Internal Revenue Service. Retirement topics: Exceptions to tax on early distributions. Accessed Apr 8, 2025.
- 10. Administrative Office of the U.S. Courts. Bankruptcy Basics. Accessed Apr 8, 2025.
More like this