Unsecured Loan

Personal Loans

Unsecured personal loan: When it’s a smart way to borrow

Updated Mar 16, 2025

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Written by

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Key Takeaways:

  • An unsecured personal loan is based on your creditworthiness and does not require collateral

  • Credit card debt is also unsecured but tends to cost more

  • You could improve your chances of getting the lowest possible interest rate on an unsecured personal loan by having a higher credit score, getting a co-signer, or applying for discounts offered by lenders.

  • See if you qualify. Apply Now

Did you just look at your bank account and say, “Where am I going to find the money to pay for that?” The new refrigerator, the medical procedure that is going to cost an arm and a leg, the soccer camp, the auto repairs… the list goes on and on.

Before you pull out your credit card or go down to the local pawn shop, take a look at how an unsecured personal loan could help you meet your financial goals.

Not sure how? We’ll break it down.

What is an unsecured personal loan?

An unsecured loan is a loan you get based on your creditworthiness. Unlike secured loans, which provide money to borrowers with assets (houses and cars, for example), unsecured loans do not require any assets or collateral. 

Unsecured personal loans are considered installment loans. That means you borrow a set amount at a fixed interest rate that won’t change for the life of the loan. That’s really important in times when interest rates go up. You’ll pay off the loan in equal monthly payments over a time period that is determined when you get the loan.  


Unsecured personal loans vs. credit cards

Unsecured personal loans and credit cards both allow you to borrow money, though they don't work the same way. 

There are several important differences between an unsecured personal loan and credit card charges.


Unsecured personal loan

Credit card

Interest rates

Rates are fixed and determined by creditworthiness and the loan terms

Rates are variable and determined by creditworthiness and economic conditions

Repayment

Monthly payments made in installments, typically over a period of 2 to 5 years

Only the minimum payment due is required

Loan limits

Typically range from $5,000 to $100,000

Typically range from $200 to $30,000

Fees

Lenders may charge origination fees, late fees

Lenders may charge late fees, foreign transaction fees

Good for

Large purchases, emergency expenses, debt consolidation

Emergency expenses, large purchases that you can pay off relatively quickly

Loan amount versus credit limit

How much can you borrow with a personal loan vs. a credit card? 

With a personal loan, you get a fixed loan amount that's based on several factors, including your creditworthiness. Credit cards, on the other hand, come with a set limit that represents the maximum amount you can charge. 

Compared to personal loans, credit card limits are typically lower. For instance, you might be able to get a $50,000 personal loan, but your credit card limit may be capped at $5,000 or $10,000. 

Limits on credit cards start as low as $200, and can be as high as tens of thousands of dollars. The loan amount for unsecured personal loans could be anywhere from $1,000 to $100,000, but most tend to range from $5,000 to $50,000. 

Repayment terms

Credit cards are also known as revolving credit because as you pay off your charges, you can make more purchases. After each billing cycle, you could choose to pay off all of your charges or carry the balance over to the next month. 

If you have a balance on your credit card, you will need to pay a minimum amount due each month. That could be much less than the required monthly payment amount for an unsecured personal loan. In this way, borrowing and spending can go on indefinitely. 

An unsecured personal loan doesn’t work like that. You’ll borrow money one time and pay it back in installments with interest. Your loan balance only goes down, not up, until it's paid off completely. 

The repayment period for a personal loan is typically between two and five years, but some lenders offer longer options. The repayment period for a credit card, meanwhile, could go on…well, forever.

Interest rates

Both credit cards and personal loans can charge interest, though rates can vary widely. 

Credit card interest rates are variable, which means they can increase or decrease as the overall interest rate environment changes. It’s normal to have a credit card interest rate that’s 20% to 36%, though it's possible to find cards that offer a low 0% introductory rate for a set period Once the introductory rate expires, the regular rate applies. 

Unsecured personal loans also charge interest, but the interest rate won’t change. Personal loan rates could be much lower than the rate on your credit card if you have good to excellent credit.

Here’s a quick way to see the differences between unsecured loans and credit cards:

Unsecured Personal Loan

Credit Card

Set interest rate

Variable Interest rate

Specific loan amount

Revolving credit limit

Up to a 5-year loan period

Ongoing loan

Typically $5,000 to $100,000

Based on credit limit

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Common uses of an unsecured personal loan

Personal loans are flexible since they can be used to meet a wide range of financial needs. Here are some common uses for an unsecured loan.

  • Consolidate and pay down higher-interest rate debt. You know how we mentioned that credit card interest rates are generally pretty high? An unsecured personal loan is one way to pay off your credit card balance at a potentially lower cost.

  • Make home improvements and repairs. Homeowners, and some renters, have all kinds of expenses. Sometimes they’re planned, like when you want to update your kitchen or bathroom. Other times, they’re unexpected—like when your air conditioner breaks down in the middle of summer and you need to replace it ASAP. Either way, it can be hard to have enough savings to pay for everything you want to do in your home. Some expenses, like a new roof, are really high, possibly even higher than your credit card limit, and may require an unsecured loan.

  • Cover medical debt. When medical bills start to pile up, you may be worried about how to pay for your care. A personal loan could be helpful if you want to make sure those bills are paid as you recover from an illness or injury. 

  • Fund a small business. If you’re a small business owner, you know that cash flow is critical. While you could use credit cards to finance your business, an unsecured personal loan could be a smart way to get access to much-needed cash.   

  • Pay for a wedding. Weddings can be expensive, and personal loans can help you cover bills from the caterer, photographer, florist—anyone who needs to get paid to make the big day happen. 

  • Plan a move. If a relocation is on the horizon because of a new job or you simply want a change of scenery, unsecured personal loans can help you pay for movers, packing supplies, and travel expenses to get to your new destination. 

  • Fund college expenses. Student loans can pay for school, but they don't always cover everything. If you need to fill a gap in your college funding plan, a personal loan can help you pay for things like textbooks, supplies, or basic living expenses. 

Interest rates on unsecured personal loans

The interest rate for your unsecured personal loan will depend on your credit rating. As a general rule, unsecured personal loan rates tend to be higher than rates for secured personal loans. 

That’s because with a secured loan, the lender gets your collateral if you default. With an unsecured loan, they would be stuck with the loss. So the rates are typically higher for unsecured loans to make up for that. 

Unsecured loans may also be harder to qualify for, since there's no collateral on the line. But if you have a history of repaying your debts and your credit score is fair or better, you might qualify for an unsecured loan.

How do you get a low rate on a personal loan? It starts with some homework. 

Compare personal loan options from multiple lenders and look at:

  • Minimum and maximum loan limits

  • Loan terms

  • Rates and fees

Look for lenders that offer rate quotes without any impact on your credit. You can use these quotes to estimate what you'll pay in interest and what your monthly payment will work out to. 

Here are a few tips to pay less for a personal loan:

  • Work on your credit if it's not as high as you'd like. Even a few points added to your score could help you get a lower rate. 

  • Consider a smaller loan amount. You might be able to get a lower rate if you opt to borrow less. 

  • Choose a shorter repayment term. Lenders may offer lower rates to borrowers who choose to pay their loans off faster. Keep in mind that a shorter term usually means a higher monthly payment. 

Also, ask about personal loan interest rate discounts that could lower your cost, including:

  • Co-borrower discount. Your besties (friends and family) could help you out by becoming a co-applicant along with you. You apply together, and if the loan is approved, you are both responsible for repayment. This could help reduce the risk to the lender, and that in turn could lower your rate.

  • Retirement asset discount. Saving for retirement? Good for you—and it’s good for your possibility of a discount, too. If you can provide proof of retirement funds in a 401(k), IRA, Roth IRA, or other retirement account, lenders know that you have backup funds that could reduce your risk of default.

  • Direct pay discount. If your loan money is going towards debt payoff, consider letting your lender send the funds directly to the creditor. Some lenders offer a discount when you do.  

Qualifying for these discounts on a personal loan through Achieve could result in savings.

How to apply for an unsecured personal loan

The process to apply for a personal loan is relatively straightforward. You'll first need to find a lender, then complete the necessary paperwork. Here's an overview of how it works.

 Get prequalified. Prequalification means a lender has done an initial review of your financial situation and offered a tentative loan approval. Prequalification is not a guaranteed loan offer, but it can give you an idea of what you might be able to borrow. 

  1. Choose a lender. If you've compared rates and loan terms from multiple lenders, it's time to choose one. Look for the personal loan option that offers the amount you need at terms that are most favorable to you. 

  2. Organize your documents. Lenders may ask for certain documents when you apply for a loan. These include a copy of your driver's license or other government-issued photo ID, pay stubs or tax forms, and bank account statements. If you have these organized before you apply, that could save some time in the approval process. 

  3. Submit an application. Many lenders allow you to apply for a personal loan online and upload your documents. Before you send in your application, review it to make sure all your information is correct. 

  4. Wait for approval. Personal loan approval is typically quick, and you may have a decision the same day you apply or the next day. Once approved you can review the loan paperwork, sign any documents the lender requires, and share your bank account details to get the loan funds. 

Got five minutes? That’s all it takes to fill out a free loan application. Talk to a loan consultant. You’ll get an answer in 24 to 72 hours.

Want some help? Call us at 1-800-920-0045, and one of our Achieve loan consultants will walk you through the process.

Pros and cons of an unsecured personal loan

Personal loans have advantages and disadvantages to consider before you borrow. Here's a quick look at how the pros and cons compare. 

Personal loan pros

  • Personal loans can offer fast, flexible funding to meet different needs. 

  • You may qualify for low rates if you have good to excellent credit. 

  • Personal loan limits may be higher than credit card limits. 

  • Fixed-rate personal loans allow for predictability, since your interest rate and monthly payment won't change. 

  • You can build a good credit history when you repay a personal loan on time. 

Personal loan cons

  • Some lenders charge fees for personal loans, which can add to your overall cost.

  • Low rates are not guaranteed, and if you have poor credit, it may be difficult to qualify for a personal loan. 

  • A lender could sue you if you default on your loan payments. 

Secured vs. unsecured personal loans

We've already talked briefly about secured loans and how they differ from unsecured loans concerning collateral and interest rates. Here's a recap of what you should know about the two. 


Secured personal loan

Unsecured personal loan

Collateral required

Yes

No

Loan rates

Tend to be lower than unsecured loans

Tend to be higher than secured loans

Qualification

Based on credit scores, income, and collateral

Based on credit scores and income

Loan limits

$5,000 to $100,000

$5,000 to $100,000

Good for

Borrowers who have collateral and want to secure a lower rate

Borrowers who don't have collateral or otherwise don't want to pledge any collateral

Using a co-signer for a personal loan

A co-signer is someone who applies for the loan with you and agrees to be held legally responsible for it. Your co-signer may not make any payments toward the loan if you agree to do so. But if you default, the lender could come after you and your co-signer to collect what's owed. 

What are the benefits of using a co-signer for a personal loan?

  • It may be easier to qualify if your co-signer has a solid credit score.

  • You may get a lower interest rate on a personal loan when your co-signer has excellent credit.

  • Lenders may offer special rate discounts or other benefits when you apply for a personal loan with a co-signer.

Are there downsides to having someone co-sign a loan? The biggest risk is damage to their credit and your relationship if you default. 

Your co-signer may not appreciate their inclusion in a debt lawsuit if the lender sues you both over an unpaid loan. Their credit (and yours) could take a hit, which could make it harder for them to get loans elsewhere. 

For those reasons, it's important to be sure you can afford the payments before you get a personal loan with a co-signer. 

Eligibility requirements

Lenders decide who to offer unsecured personal loans to based on several factors. Typically, personal loan requirements extend to:

  • Credit scores

  • Employment

  • Income

Why these factors? Lenders want to make sure you have enough money to make your monthly loan payments and that you're likely to pay on time. They use your credit scores as a guide to gauge your creditworthiness or level of responsibility when it comes to debt. 

The minimum credit score for a personal loan is typically in the 620-660 range, though it may be higher with some lenders. The better your credit score, the easier it may be to qualify for an unsecured personal loan and get a lower rate. 

How to choose the best unsecured personal loan

When you need a personal loan, it's okay to take your time. The right personal loan for you offers the best terms and the amount of money you need to borrow. 

Here are a few tips you can use to choose the best unsecured personal loan for your situation. 

  • Estimate what you need. First, figure out how much you need to borrow. You don't want to get more loan than you need, since that's just more to repay. 

  • Compare rates. Next, shop around and compare personal loan rates from different lenders. Look at how rates are calculated based on the loan term and amount. 

  • Review the terms. How long will you have to repay the loan? What's the monthly payment? Are there any fees? These are all good questions to ask as you compare loans so you know what you're getting. 

  • Look for perks. Some lenders offer rate discounts or let you choose your monthly payment date when you get a loan. Those are nice benefits to have that could make a loan more attractive. 

Before you apply for a personal loan, check your credit.  That can give you an idea of whether you might need a co-signer to qualify and what rates you may be eligible for. 

Alternatives to unsecured personal loans

Personal loans are just one way to get cash when you need it. You could also explore other ways to borrow, which might include:

  • Credit cards

  • A home equity loan or HELOC if you own a home

  • Retirement plan loans if you have a 401(k) at work

  • Loans from friends and family

Each one has pros and cons. Credit cards, for example, are convenient, but they can carry high interest rates. A home equity loan or HELOC can offer lower rates, but they require you to use your home as collateral to borrow. That means if you don't repay the loan, you could lose your home. 

Retirement plan loans can give you ready access to cash but they could shortchange your retirement savings in the long run. And loans from friends and family may be interest-free, but they could turn a relationship sour if you don't repay what you borrow.

The best way to decide whether to choose a personal loan or another loan option is to consider what you need the money for and how you'd prefer to repay it. At the end of the day, unsecured personal loans can meet your financial needs with fewer hassles than other loan options. 

Author Information

Rebecca-Lake.jpg

Written by

Rebecca is a senior contributing writer and debt expert. She's a Certified Educator in Personal Finance and a banking expert for Forbes Advisor. In addition to writing for online publications, Rebecca owns a personal finance website dedicated to teaching women how to take control of their money.

kim-rotter.jpg

Reviewed by

Kimberly is Achieve’s senior editor. She is a financial counselor accredited by the Association for Financial Counseling & Planning Education®, and a mortgage expert for The Motley Fool. She owns and manages a 350-writer content agency.

Frequently asked questions

A secured loan requires collateral. Collateral is something valuable that you pledge as a guarantee that you’ll repay the loan. If you don’t repay the loan, you could lose the collateral. A common example is a house, which is the collateral for a mortgage. Collateral is a financial safety net for the lender.

With an unsecured loan, you qualify based on your credit standing and the financial information you provide. If you fail to repay the loan, the lender can’t take anything you own to cover its losses. Of course, they could (and probably will) pursue you in other ways for repayment of the loan.


Because they aren't attached to collateral, unsecured loans are a little riskier for the lender than secured loans. If something happens and you don’t repay the loan, the lender could lose money. In general, we pay more for financial products that lenders consider riskier. So if you were to shop on the same day for an unsecured personal loan and a car loan, the average interest rate for car loans would probably be lower than the average rate for personal loans.

When you apply, tell the lender you have a co-applicant. This is usually a box to check when you apply online. It only takes a few minutes to fill out an online loan application. The lender will verify both people’s identities and income and will check both people’s credit.




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