Unsecured Personal Loans Guide
Unsecured personal loans are loans that you can borrow from a bank, credit union, or alternative lender to use for just about anything you want.
Whether you want to go on a trip, consolidate your credit card debt, or pay for home renovations, you can use your personal loan however you see fit.
Unsecured personal loans, in particular, are loans that don’t require you to put up collateral in order to borrow money. Meaning, if you default on your loan, you don’t have to hand over any valuable property to your lender.
Secured vs. Unsecured
The main difference between secured and unsecured personal loans is simply that unsecured loans don’t require collateral. Secured loans do.
This can be both a good and a bad thing.
The Good: Unsecured loans are less risky for you, the borrower. By not having to put up collateral, you are taking on less risk than the lender. If you default, the lender has to resort to other means, like selling your debt to a collections agency.
The Bad: Since they are more risky for lenders, unsecured personal loans generally have higher interest rates and are harder to qualify for than secured loans. Loan limits may be lower as well.
Still, if you’re able to qualify for a low interest rate, an unsecured personal loan is often a better option than a secured loan.
How Much Does an Unsecured Personal Loan Cost?
To determine how much your personal loan might cost, you need to look at four main factors: loan limit, interest rate, term, and fees.
Loan Limit: Loan limits vary by lender. For some lenders, you may only be able to take out $5,000 to $10,000. Others may offer as much as $40,000. BE sure to check with the lender of your choice to find out how much you can borrow.
Interest Rate: As mentioned, interest rates for unsecured personal loans tend to be higher than secured loans. While interest rates vary, you should expect to find offers in the 10% to 13% range if you have a good credit score.
Term: Terms for unsecured personal loans tend to be relatively short. Depending on the lender, you can expect a repayment term of one to five years.
Fees: Lenders might charge origination, prepayment, late payment, processing, and other fees at their discretion. Be sure to review your lender’s terms to understand what fees you might end up being charged.
Benefits of Unsecured Personal Loans
Unsecured personal loans offer a number of advantages, including:
● No collateral
● Available from a variety of lenders
● Fast approval process
● Less borrower-side risk
While secured loans often offer lower interest rates and better terms, unsecured personal loans are less risky and may be a better option if you have a good credit history.
Tips for Applying for an Unsecured Personal Loan
Interested in applying for an unsecured personal loan?
Keep these tips in mind to make the application process as easy as possible.
- Compare Lenders
Lenders aren’t one-size-fits-all. It’s important to compare rates and terms between multiple lenders to find the best option for you.
Be sure to choose at least three or four different lenders to compare before moving forward with one.
- Get Pre-Approved
Getting pre-approved for loans from multiple lenders will help make it easier to find the best choice for you.
Lenders use your basic personal and financial information to pre-approve you for a loan and offer terms based on this preliminary screening.
While terms may change after going through the official application process, pre-approval is a great way to see where you stand and what rates you may qualify for.
After picking a lender, it’s time to apply. Most applications will require the following documents, so make sure to have them ready:
● Personal Identification (ID, Driver’s License, SSN)
● Proof of Income (Bank Statements, Pay Stubs, Tax Returns)
● Proof of Employment
● Credit History
● Unpaid Debts
● And more
Be sure to check with your lender for a complete list of necessary documents.
If your application is approved, make sure to review your agreement one last time before accepting the funds. If you agree to the terms, you can sign the agreement and receive your money.
Monthly payment on 2 year loan with no origination fees, 10.31% interest, good credit, and $10,000 balance, assuming unsecured