The best unsecured personal loans in 2024 and what you’ll need to qualify (2024)

What are unsecured personal loans?

An unsecured personal loan is an installment loan not backed by collateral, so you don’t need to use property — like a car or house — to secure the debt. Instead, lenders assess your eligibility by reviewing your credit scores and history, income and existing debt. There are several advantages to personal loans:

• Flexible use: Unsecured personal loans can be used for nearly any legal purpose, including debt consolidation, home improvement, or to cover the cost of medical bills. Most lenders don’t allow funds to be used to pay for college, fund a small business or make investments.
• Repayment terms: Unsecured personal loans usually have repayment terms of one to seven years, so you can spread out the cost of a major purchase over time.
• Affordable interest rates: Personal loans have annual percentage rates (APRs) between 7% and 36%, so they can be more cost-effective than the average credit card APR — if you qualify for a rate on the lower end of a lender’s spectrum. (And if you get a loan from a federal credit union, you won’t pay more than 18%.) Personal loan rates are fixed, which means your monthly dues won’t change throughout repayment.
• Large borrowing amounts: If you have excellent credit, you may be able to borrow as much as $100,000 with an unsecured personal loan. However, some lenders cap borrowing amounts at $50,000 or below.

How do unsecured loans work?

Unlike secured loans, which require you to provide something valuable as collateral, unsecured loans are issued solely based on your creditworthiness and loan purpose. Lenders consider your credit history, credit scores, amount of debt and income when deciding whether to approve your application.

If you borrow an unsecured loan and fall behind on your payments, there’s no collateral for the lender to seize. They can charge you late fees, report your account to the credit bureaus as delinquent and send your account to collections, but they can’t take and resell your house, car or other property to recoup their money.

Common unsecured personal loan uses

• Debt consolidation: The average American had a credit card balance of $6,241 in early 2024, according to TransUnion. You can use a personal loan to consolidate your various credit card balances (and other debt) into a single loan payment, ideally at a lower interest rate. This is the most common use of an unsecured personal loan.
• Home improvement: Personal loans can be used to finance home renovations, from small-ticket items like landscaping to bigger projects like remodeling your kitchen, repairing your roof or updating flooring.
• Medical expenses: If your medical procedures aren’t covered by insurance, such as LASIK eye surgery or dental work, a personal loan allows you to spread out the cost in monthly installments.
• Travel: Although going into debt for a vacation (or another “want”) isn’t recommended, a personal loan can be used to finance a once-in-a-lifetime trip.
• Nearly anything else: You might use funds from a personal loan to cover everyday bills, fix your car, pay for a wedding, cover moving costs or make a major purchase. Check with your lender about its prohibited loan uses before borrowing if you aren’t sure.

Although personal loans can be used for a broad range of purposes, there are some restrictions. Typically, lenders prohibit the following uses:

• Education and student loan repayment: Generally, lenders don’t allow funds to be used for postsecondary expenses, including college tuition or to repay student loan debt.
• Business expenses: Most lenders forbid borrowers from putting funds toward their small business. (If you’re looking to launch a business, consider a startup business loan instead.)
• Gambling: You can’t use personal loan funds to gamble online or in person.
• Investing: Loan funds can’t be invested in stocks, bonds or cryptocurrencies.
• Illegal activity: Perhaps it goes without saying, but you can’t use a personal loan to fund illicit activities, including the cannabis industry.

Secured vs. unsecured personal loans

Unsecured loans make sense if you have good credit or a creditworthy cosigner (or co-borrower) to help you qualify for a lender’s lowest rates. They can be a good alternative to credit cards if you’re eligible for a competitive rate and want to put an end date on your repayment. And since there’s no collateral to assess or appraise, funding is often quicker on unsecured loans.

A secured loan can be helpful if you have less-than-perfect credit or want to access even lower borrowing rates. Securing a loan with your car, a savings account or other property will improve your chances of being approved for a loan, and you may qualify for a lower rate or larger loan amount than you’d otherwise get.

Related >> Secured vs. unsecured loans

An unsecured personal loan can help you pay off debt faster than continuing to make minimum credit card payments. They usually have lower APRs than credit cards, so you may save money on interest through debt consolidation. But consolidating credit card debt isn’t the only way to use an unsecured personal loan — most lenders allow funds to be used for nearly any purpose.

Unsecured personal loans don’t require collateral, which means faster approval and no risk of losing an asset if you fall behind on payments. But this lack of collateral means higher risk for the lender and translates to higher interest rates for you.

You’ll need good to excellent credit to qualify, or you can apply with a cosigner or co-borrower with strong credit to improve your eligibility and access lower rates. Although you won’t lose assets in the event of loan default, the missed payments and eventual collections activity will seriously damage your credit scores, making borrowing more difficult and costly in the future.

Average unsecured loan interest rates

Your credit scores play a significant role in the interest rates you’ll pay on an unsecured personal loan. High credit scores reflect a history of responsible credit usage and on-time payments, so lenders are willing to charge lower rates. Conversely, if you have low credit scores, lenders view you as a risky borrower and inflate your rate to offset that risk.

Here’s a look at current personal loan rates by credit score:

Example: Suppose you want to borrow a $10,000 loan and repay the debt over a three-year term. Here’s what you could expect to pay depending on your credit score range:

As you can see, you’ll pay significantly less over the life of your loan if you have very good credit. With bad credit, you could pay more than double the amount of interest over the life of your loan.

Unsecured loan eligibility requirements

Although each lender has its own unique personal loan requirements, you’ll generally need to meet the following criteria:

• Credit scores: The higher they are, the more likely you are to qualify for a low rate. In general, lenders look for good credit, meaning scores of 670 or better. Loans for borrowers with lower credit scores are increasingly common, but they often come with higher rates and fees. To get the best loan options, focus on improving your credit.
• Credit history: Lenders want to see that you have a history of handling credit responsibly, and they'll review your credit reports. Missed payments or bankruptcy will hurt your chances of qualifying for a loan.
• Debt-to-income (DTI) ratio: This is a measure of how much of your monthly income goes toward debt payments. To calculate your DTI, divide your total monthly debt payments by your pre-tax monthly income. A DTI below 36% is ideal, but lenders may accept ratios of 43% or higher.
• Steady income: You’ll need to demonstrate income from a job, retirement income or other regular sources.

Applying for unsecured loans in 6 steps

Getting an unsecured personal loan is much easier than applying for a secured form of borrowing, like a mortgage. Here’s what you’ll need to know to get a personal loan:

1. Check your credit

Your credit is the biggest factor determining your eligibility for a loan. Start by checking your credit scores via your bank, credit card issuer or third-party service — this will give you a preliminary idea of the rates you can expect.

Then, review all three of your credit reports at AnnualCreditReport.com to ensure that all the information is correct. If you spot an inaccuracy, dispute the credit report error with the appropriate credit bureau. (Note: Negative credit information can’t be removed from your report if it’s accurate — only mistakes, such as a closed account appearing as open, can be removed.)

2. Determine your budget

Before borrowing, it’s always wise to be sure that the potential loan payment fits into your budget. If the loan would stretch your wallet to the breaking point each month, you’re more likely to fall behind on payments and damage your credit.

Consider how much you need to borrow to meet your financial goals, then use a personal loan calculator (like Calculator.net’s) to estimate your monthly payment.

3. Get pre-qualified with multiple lenders

Many lenders offer personal loan pre-qualification so you can view your potential loan options without impacting your credit. Keep in mind that pre-qualified offers are not a guarantee of approval or final terms. But these estimates can give you an idea of whether you’re likely to qualify and if the loan options are in line with your needs and budget.

By getting pre-qualified with multiple lenders — including banks, credit unions and online lenders — you can compare APRs and narrow down your options to the lender with the most affordable loan. When comparing loan offers, calculate each option's monthly dues and overall cost to ensure it fits your budget.

4. Gather documents

Save time by collecting the necessary documents before starting your application. Most lenders require the following information:

• Your Social Security number
• A copy of your driver's license
• Your contact information, including your address and phone number
• Your employer’s address and phone number
• Your gross monthly (or annual) income
• Your rent or mortgage payment amount
• Proof of income, including recent pay stubs or tax returns
• Address verification, including utility bills
• If consolidating debt, you may need to supply recent statements from your creditors

5. Submit an application

With a lender selected and verification documents ready to upload, it’s time to submit a formal application. The lender will prompt you to consent to a hard credit check, which can cause your credit scores to drop by about five points, according to FICO.

In many cases, your application can be processed in minutes, and you might receive a decision almost instantly. Some lenders take longer — particularly for larger loan amounts — so it may take a few hours or even a few days to receive a loan decision.

6. Receive loan funds

If you're approved, the lender will send you a loan agreement. Review this document carefully before signing to ensure that the rate, amount, repayment terms and fees align with your expectations.

Once you've signed and returned the agreement, the lender will disburse the loan funds. If you opt for direct deposit into your bank account, you could receive loan funds as soon as the same day you sign the agreement. Other disbursem*nt methods, such as a mailed check or direct creditor payoff, can take longer.

Alternatives to unsecured personal loans

• 0% APR credit card: If you have good credit and don’t need a large amount, you may be eligible for a credit card with a promotional 0% APR offer. As long as you repay the balance in full before the end of the promotional period, which might be 12 to 21 months, you can avoid paying interest on your purchases.
• Personal line of credit: Rather than getting a lump sum upfront, this flexible form of revolving credit allows you to tap into the credit line as needed, only paying interest on what you’ve borrowed. As you repay the balance, you can borrow again. It's a good option if you don’t know how much money you need, but APRs are typically variable, making it hard to budget for repayment. Personal lines of credit are less common than personal loans — your local bank or credit union is a good place to start.
• Home equity loan or HELOC: If you’re a homeowner, you can borrow against the home equity you’ve built — the difference between your home's appraised value and your mortgage balance — with a home equity loan or HELOC. These forms of credit tend to have lower rates and higher maximums than personal loans, but your house serves as collateral. That means that you risk foreclosure if you fall behind on payments.
• Buy now, pay later apps: If you need to break up the cost of a large retail purchase, a buy now, pay later app might provide interest-free borrowing. Many apps offer a Pay in 4 structure, where you split the cost into four installments and make a payment every two weeks, often without interest. These apps can be a good option if you need to finance a purchase of $1,000 or less and can repay it quickly.
• Loan apps: If you need a relatively small amount of money, you can use a loan app to get a portion of your upcoming paycheck early. It can be a useful option if you have a small emergency expense but are facing a cash flow shortage. While loan apps can be useful, they’re not a long-term solution and could be abused.

Methodology

Our editorial team created a rubric to evaluate 27 popular personal loan lenders across 26 criteria. Then, our data analysts gathered and assessed more than 700 data points to create an out-of-five-star rating. The lenders that fared the best scored highly in each of the following categories:

Loan cost (30%)

When you need to borrow money, it’s important to keep costs to a minimum. With that in mind, we prioritized lenders that offer the lowest personal loan rates, charge the fewest fees and provide opportunities for rate discounts. We also considered whether each lender allows you to preview rates with a soft credit check via pre-qualification.

Loan details (30%)

Here, we examined the nuts and bolts of each loan, judging factors such as repayment terms, loan amounts and funding timelines. The lenders that scored highly offer copious options and fund loans quickly.

Eligibility (25%)

The best personal loan is available to the widest variety of borrowers. We judged each lender’s eligibility criteria, including minimum credit score and income requirements and whether they permit cosigners or co-borrowers. We also prioritized lenders that are available nationwide or in a majority of states.

Repayment experience (15%)

Getting a good personal loan rate is important, but it’s not the end of the road — it’s actually the beginning of repayment. For this category, we examined each lender’s customer service options, including methods of communication and mobile app availability. We also leveraged independent organizations — such as the Better Business Bureau and the Consumer Financial Protection Bureau — to better understand lenders’ past behavior toward borrowers.

What didn’t make the cut

Although each lender we assessed offered unique benefits to borrowers, many didn’t measure up, often because of high interest rates or a lack of transparency. Here are a few examples of big-name lenders that fell short:

• Rocket Loans and Upstart only offer two repayment term options.
• Avant and LendingPoint offer small borrowing amounts.
• OneMain Financial, BHG Money and Universal Credit charge high interest rates.
• Achieve, Old National Bank and U.S. Bank aren’t available in all states.

Frequently asked questions (FAQs)