How do unsecured loans work?
An unsecured personal loan doesn’t require collateral to guarantee the loan, and you can use the money for almost any purpose. To get an unsecured loan, you’ll need to apply with a bank, credit union or online lender that offers personal loans. If approved, you’ll receive the money in a lump sum in your bank account. You’ll then repay the loan in monthly installments spread out over a set repayment term. Interest is fixed over the life of the loan, so you’ll make the same payment each month.
Loan amounts range from $1,000 to $100,000 and are paid back in terms ranging from one to seven years.
How to get an unsecured loan
1. Pre-qualify with multiple lenders
Before formally applying with a lender, you’ll want to shop around to find the best unsecured loan. The easiest way to do this is by pre-qualifying with lenders, which involves filling out a short application on each lender’s website. Pre-qualification includes a soft credit check, which won’t hurt your credit score.
You can then see what loan amount and rate you may qualify for and compare offers between lenders. Though not all lenders offer pre-qualification, most online lenders do.
2. Apply for the loan
Once you’ve settled on a lender, it’s time to formally submit your application. Many applications are completely online and require you to list personal details, such as your name, address, contact details and Social Security number.
You may also need to provide additional documentation, like proof of identity, employment and income. After you submit your application, you should hear from the lender within a few days. Some lenders may offer an instant approval decision.
3. Get funded
Once approved, you’ll sign the loan documents and receive the loan funds in your bank account. Funding time varies by lender, but most send the loan funds within a week. Many online lenders can even fund loans the same or next business day after you’re approved.
Once you receive the funds in your account, you’re free to use them however you want, such as paying off your creditors or applying them to a large expense.
4. Plan for regular monthly payments
Your first payment generally comes due 30 days after closing your loan. Take time to adjust your budget to ensure on-time monthly payments. This can help you avoid late fees and hits to your credit.
How to get the best rate on an unsecured loan
Annual percentage rates on unsecured loans — which includes the loan’s interest and any fees — range from 6% to 36%. The lowest rates will go to the best qualified applicants. Here’s what lenders look for: Good credit: Good- and excellent-credit borrowers (with scores in the mid-600s or higher) typically get the lowest APR on a personal loan. Some lenders cater to fair- and bad-credit borrowers (with credit scores between 300 and the low 600s), but the best terms and rates are reserved for those with high credit scores.
Low debt-to-income ratio: Many lenders check whether your debt-to-income ratio is low enough to support monthly repayments. Some say borrowers need a 36% DTI or lower to qualify, but others have higher limits. Stable credit history: Lenders favor borrowers who can show that they’ve consistently made on-time payments across multiple accounts — which can be credit cards, auto loans or other installment loans — over a number of years. Aim for at least two or three years of credit history across two or three accounts.
Steady income: Having a steady income can signal to a lender that you'll have the funds available to repay your loan.
Average interest rates on unsecured personal loans
Here's an idea of what rate you can expect on an unsecured loan, based on your credit score.
Borrower credit rating | Score range | Estimated APR |
|---|
Excellent | 720-850. | 11.81%. |
Good | 690-719. | 14.48%. |
Fair | 630-689. | 17.93%. |
Bad | 300-629. | 21.65%. |
Source: Average rates are based on aggregate, anonymized offer data from users who pre-qualified through NerdWallet from January 1, 2024, through December 31, 2024. Rates are estimates only and not specific to any lender. The lowest credit scores — usually below 500 — are unlikely to qualify. Information in this table applies only to lenders with maximum APRs below 36%.
You can use NerdWallet’s personal loan calculator to plug in your potential loan amount, repayment term and APR to see what your monthly personal loan payments would be. How to get an unsecured loan with bad credit
You can still get an unsecured loan even if you have bad credit (any score in the high 500s or lower), and some lenders specifically offer loans to bad-credit borrowers.
Look for online lenders that let you pre-qualify, so you can check if you meet the lender’s requirements without risking a hit to your credit score. If you don’t qualify on your own, you can also consider adding a co-borrower or co-signer with a higher credit score to your loan application. Your neighborhood credit union may also lend to borrowers with bad credit, but you’ll need to become a member first. Credit union membership is typically quick and affordable.
Common uses for unsecured personal loans
Though an unsecured personal loan can be used for almost any purpose, NerdWallet recommends using one when it can improve your finances. This could mean getting a loan for debt consolidation, which can reduce your debt and help you pay it off faster, or for a home improvement project that increases the value of your home.
Unsecured personal loans for debt consolidation
Debt consolidation involves combining debt from multiple sources into a single monthly payment, ideally at a lower interest rate. Using an unsecured personal loan to consolidate debts can save money on interest and give you an end date to work toward.
Unsecured personal loans for home improvement
Using an unsecured personal loan for home improvement is an option if you don’t have a lot of equity in your home or want to avoid using your home to secure the loan. By financing important repairs or updates, you can potentially increase the value of your home.
Unsecured personal loan alternatives
You may want to consider alternatives along with a personal loan, depending on what you're financing.
0% APR credit card: These credit cards work well if you want to finance a major expense or consolidate debt with zero interest. You’ll need good or excellent credit to qualify, and you’ll want to make sure you can pay off the card during the 0% promotional period, which can extend up to 21 months. Home equity loans and HELOCs: These are good options for home renovations if you're comfortable using your home as collateral and have enough equity to qualify. A home equity loan can give you a longer repayment term and typically a lower rate than a personal loan. A home equity line of credit (HELOC) lets you use funds as needed, and you only pay interest on what you use. 
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