What is an unsecured loan?
An unsecured loan doesn’t require collateral. Learn about how this kind of loan works, the types and what to consider before getting one.
Sandy Baker
Get help covering expenses or consolidating debt
A personal loan provides funds you can use for just about anything, making it an important financial tool for many. You can use a personal loan to consolidate debt at a lower interest rate, complete home renovation projects or pay for an emergency expense.
Personal loans are widely available from traditional banks, credit unions, online lenders and specialized lenders. It’s important to shop around and compare your borrowing options when considering what lender to use.
You can get a personal loan from a bank, credit union or online lender. A personal loan is typically an unsecured loan. These loans are meant for individuals with decent credit and the income to make regular payments.
Before taking out a personal loan, you'll want to determine how to borrow and how much you're comfortable paying each month. Then you can compare several lenders to get an idea of which is best for your needs.
Both community and nationwide banks can be good options for personal loans. If you have an existing relationship with a bank, you might have a greater chance of approval. Most require a credit score of about 640 for approval, but you may be able to get a personal loan with a lower score if you have a relatively high income or low debt-to-income (DTI) ratio.
Personal loans from banks may provide:
Credit unions are not-for-profit businesses with a mission to serve their members. They are usually local and can be highly specialized, like for those who belong to a specific professional group. Most often, credit unions offer the same financial tools as traditional banks, including personal loans.
To borrow from a credit union, you need to become a member, which has benefits. Credit unions return their profits back to members in the form of higher savings rates, lower fees and lower lending loan rates.
They also offer personalized customer service — a reviewer on our site from Florida mentioned it was their credit union that referred them to a nonprofit debt counseling company that helped them out in their time of need.
Personal loans from credit unions usually include:
Online lenders are some of the most flexible lenders out there. Many offer competitive rates and sizable amounts of money to those who can prove they can repay the debt. These lenders also make borrowing a personal loan convenient; you can apply, get a decision and get funds all in the same day in some cases.
Personal loans from online lenders may offer:
So, which type of lender is right for your situation? To determine the right lender for you, you should first ask if you want in-person service; if you do, you can rule out online lenders. Next, start comparing offers from lenders based on factors such as:
Some online lenders can tell you if you qualify for a loan within minutes and issue approval and pay out funds on the same day. Most online lenders make funds available within one to three business days.
Many lenders offer online loans. The best online loan is one that offers the loan amount, interest rate, repayment term and customer service that best fits your needs. Compare offers from at least several lenders to find the best online loan.
Many lenders offer small loans (often less than $3,000). You may be more likely to get a small loan from a bank or credit union, though some online lenders offer personal loans starting at $1,000 or less.
Choosing the best personal loan for you means comparing options from different kinds of lenders, including banks, credit unions and online companies. Banks and credit unions provide in-person customer service and may have special offers for account holders, while online lenders often make applying and borrowing convenient and fast.
Start by looking for lenders that let you pre-qualify without a hard credit check so you can see potential terms without any negative effect on your credit score.
An unsecured loan doesn’t require collateral. Learn about how this kind of loan works, the types and what to consider before getting one.
Sandy Baker
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