The Best Unsecured Personal Loans
Here’s our list of some of the best personal loans to consider. To create this list, we evaluated over two dozen lenders based on various factors, such as affordability, customer experience, company reputation and loan terms offered.
- LightStream: Our Top Pick
- SoFi: Best Customer Service
- PenFed: Best for Small Loans
- Discover: Best for Low Rates
- Upstart: Best for Bad Credit
- U.S. Bank: Best for Bank Switchers
- Upgrade: Best Discounts
- Wells Fargo: Best for In-Person Service
When Might You Consider an Unsecured Personal Loan?
To figure out whether taking out a loan is the right move based on your unique financial circumstances, consider contacting a certified credit counselor or financial planner. With no collateral required and decent interest rates, personal loans are often a good borrowing choice – but not always, said Natalia Brown, chief compliance and consumer affairs officer at National Debt Relief. “They can be great for those with good credit that are looking to pay off their debt quickly, but this may not be the best option for someone struggling to manage their debt,” she said. You can find a government-approved credit counselor in your area by visiting the Department of Justice’s website.
That said, here are some scenarios where it could make sense to take out an unsecured personal loan:
- Debt consolidation: Taking out a personal loan to pay off existing debt might save you money if you qualify for a lower interest rate. In a MarketWatch Guides survey, debt consolidation was the top reason people took out a personal loan.
- Home improvement projects: Using a loan for a home improvement project could help boost your home’s value. One in five people in our survey took out a loan for a home improvement or renovation.
- Emergency expenses: If you need funds to cover an emergency expense, such as a car repair or medical bill, a personal loan can help.
The main advantages of using an unsecured loan are that funding is usually quick, and you don’t have to pledge collateral. That said, these loans can be expensive.
By comparison, a secured loan, such as a home equity loan, requires you to risk your home, and it could take weeks for you to receive your funds.
Secured vs. Unsecred Personal Loans
Secured Personal Loan | Unsecured Personal Loan | |
---|---|---|
Interest Rate (APR) | 2.25%-35.99% | 6.4%-35.99% |
Amount You Can Borrow | $250-$300,000 | $600-$100,000 |
Origination Fees | 0-10% | 0-9.99% |
Loan Terms | 0-84 months | 12-84 months |
How It Works | An installment loan backed by collateral like a car or home equity | An installment loan backed by your credit score, income and promise to repay the loan |
Who It’s Best For | A borrower with collateral like a vehicle, house or savings account | A borrower with good to excellent credit and a steady income |
Tips for Choosing the Right Unsecured Personal Loan
While shopping around for a personal loan, it’s a good idea to compare as many lenders as possible based on several factors, such as rates, terms, eligibility requirements and fees. Also compare how long it will take to get your loan funds. Brown of National Debt Relief recommended online lenders as a solid option if you need money quickly.
“Personal loans from online lenders can be much faster than getting the same loan from a bank or credit union. This is because the preapproval and submission process often takes place without having to leave the home, meaning you can sometimes receive funds as soon as the same business day.”
Natalia Brown, chief compliance and consumer affairs officer at National Debt Relief
Some lenders offer prequalification, which allows you to preview rates and terms you might receive if approved without affecting your credit. But note that prequalifying doesn’t guarantee approval, and lenders usually perform a hard credit check when you submit a formal loan application, which may temporarily ding your credit. “This can be rectified by making the new payments on time,” Brown said.
Before you apply for a loan, you may also want to consider how the annual percentage rate and repayment term might affect your monthly payment and total borrowing costs. That way, you can better assess which lender offers terms that best fit your budget. For example, selecting a longer repayment term can lower your monthly payments, but it leads to paying more interest over the life of the loan. By contrast, a shorter loan term usually means less overall interest but higher monthly payments.
The Bottom Line
Unsecured personal loans may be a good solution if you need money quickly and don’t have or want to risk collateral. However, these loans come with their own potential downfalls, including higher APRs and monthly payments.
Before you take out a loan, consider how it can affect your budget and financial goals, plus consider alternatives. If you decide to move forward, compare rates, terms and fees from as many lenders as possible to find the loan option that best matches your needs.
Frequently Asked Questions About Unsecured Personal Loans
An unsecured loan may be more challenging to get approved for than a secured loan. But it’s still possible to qualify for one, even with minimal credit history or a poor credit score. Typically, borrowers with a solid financial footing will qualify for lower APRs and more generous terms.
When you apply for an unsecured loan, a lender typically reviews your credit profile, income and other factors to determine whether you qualify, your loan amount and your interest rate. Once approved, the lender issues you a lump sum, which you pay back in fixed monthly installments, including interest. If you repay what you borrow on time, it can help improve your credit score, as lenders generally report payments to the three major credit bureaus — Equifax, Experian and TransUnion. But if you default on the loan, it can cause serious damage to your credit.
The credit score needed to qualify varies depending on the lender. Some lenders, like SoFi, require applicants to have good credit, which is generally defined as a FICO score of 670 or higher. However, a few lenders have minimum credit score requirements below 600. If a lender approves you for a personal loan with bad credit, note that it’ll likely charge you a higher APR than someone with good credit.
Maximum loan amounts vary by lender, and the amount you can borrow if you qualify depends on various factors, such as your credit score, income and debt-to-income ratio (DTI). That said, lenders such as SoFi and LightStream offer unsecured loans up to $100,000 to well-qualified borrowers.
Methodology: Our System for Ranking the Best Personal Loans
Our team put together a comprehensive 100-point rating system to evaluate personal loan companies. We gathered data points from 28 of the most prominent lenders in the US and analyzed disclosures, licensing documents, sample loan agreements, marketing materials and websites. Our rating system takes into account four broad categories.
- Affordability (35%): How expensive each company’s loans are to pay back.
- Loan features (35%): The breadth of loan terms and features available to prospective customers.
- Customer experience (20%): Ease of application, prequalification and customer service interactions.
- Company reputation (10%): An exploration of lenders’ Better Business Bureau files, customer reviews and outstanding regulatory actions.
Our top-rated lenders may not be the best fit for all borrowers. To learn more, read our full personal loans methodology.
Editor’s Note: Before making significant financial decisions, consider reviewing your options with someone you trust, such as a financial adviser, credit counselor or financial professional, since every person’s situation and needs are different.
If you have questions about this page, please reach out to our editors at editors@marketwatchguides.com.