An unsecured loan does not require collateral, like a house or car. Instead, lenders issue these loans based on your creditworthiness, which includes things like your credit history, income and outstanding debts.
You can use funds from an unsecured personal loan to pay for almost anything, but the best personal loan helps you achieve a financial goal without adding unmanageable debt.
If you’re considering getting one, learn the pros and cons, what they can be used for, where to get an unsecured loan, and how to qualify.
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.
Unlike with a secured loan, the lender can’t take your property if you stop making payments on an unsecured loan.
Borrowers with excellent credit scores (720 to 850 FICO) may qualify for rates as low as those on secured loans. Annual percentage rates for unsecured loans start around 6%.
Unsecured loans are riskier for lenders and therefore can have higher interest rates, especially for bad-credit borrowers.
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.
