Lending companies typically want you to use collateral as security when they give you personal loans, but that doesn’t mean you don’t have options if you don’t have any collateral or assets. Suitable lenders can help you get the cash you need without putting up collateral. You need to know how to go about it.
What Are Unsecured Personal Loans?
An unsecured personal loan is helpful for debt consolidation, home improvement, or major purchases like furniture. The amount of money you can get from an unsecured loan ranges from $500 to $35,000, and your interest rate will vary depending on your credit score.
Most lenders offer fixed rates for these no collateral loans, which means that each month you’ll pay exactly what you agreed upon when you took out your loan. If you are curious about similar types of loans, check out Lantern by SoFi.
The most common uses of unsecured loans:
Paying for medical emergencies or unexpected life expenses
Purchasing a car, motorcycle, boat, or RV
Although some people apply for unsecured loans using homes as collateral — which is sometimes possible with second mortgages — most home equity loans and lines of credit are secured. Some people take out personal loans from their retirement savings plans, but those aren’t very common.
Steps to Getting Approved for a Personal Loan
Know your credit score. Before you apply for a personal loan, make sure you know your credit score. Three major credit bureaus assign credit scores — Experian, Equifax, and TransUnion — and vary based on factors like how much debt you have and how long you’ve been using credit.
Determine what kind of loan you need. It can be easy to jump right into applying for a personal loan without considering which type is best suited for your specific needs. For example, most people get secured loans through banks or lenders that hold collateral such as an auto title or home equity if you default on payments; however, unsecured loans can be easier to obtain since no collateral is required.
Research where you want to apply. Once you decide on an unsecured loan, begin looking for lenders. NerdWallet recommends researching multiple lenders and comparing rates, fees, and terms so that you’re sure to get a loan that fits your budget. Avoid applying for loans from credit card companies, as these companies usually offer higher interest rates than other financial institutions. You can also look at peer-to-peer lending websites like Lending Club or Prosper.
Applying for an Unsecured Loan
Getting approved for an unsecured loan can be difficult. Creditors want proof that you’ll pay them back, and they don’t trust your word on it. So make sure you have some collateral—such as property, savings, or investment accounts—to show that you have cash in hand if your loan goes sour.
If not, consider applying for a personal loan with collateral or an installment loan instead; it may be easier to get approval than an unsecured personal loan. Unsecured personal loans are loans made to people or companies who don’t have collateral for their loans.
But, of course, this isn’t always a bad thing, as there is still tons of value in getting an unsecured loan. So the more you understand these types of loans, the easier it will be to decide if one is right for you.