Banks, credit unions, and online lenders currently provide unsecured loans to borrowers. These loans do not require collateral, unlike secured loans, but approval can be more difficult. However, they carry less risk for borrowers, as assets are not at stake if payments are missed.
Most installment loans are unsecured, such as student loans, personal loans, and revolving credit like credit cards. Eligibility varies by lender, but generally requires good or excellent credit and a steady income. The most creditworthy borrowers often receive the best terms and lowest interest rates. Unsecured loans can be used for nearly any legal expense.
Unsecured loans, also called signature loans, only require a signature if borrowing requirements are met. Lenders charge higher interest rates due to the increased risk without collateral. Secured loans differ by requiring collateral, such as an asset, for approval.
Unsecured loans come as revolving debt, like credit cards, or installment loans, such as personal or student loans. Installment loans involve fixed monthly payments over a set period. Credit cards allow flexible borrowing but typically have higher average interest rates, with interest accruing on missed payments.
Borrowers who need funds but prefer not to pledge collateral may consider unsecured loans for large purchases, debt consolidation, or if they have good credit and reliable income. Types include personal loans, student loans, and credit cards. Personal loans, with amounts from $1,000 to $50,000 and average interest rates of 12.19% as of Jan. 14, 2026, suit those with good credit and specific funding needs. Student loans, either federal or private, cover education costs, with private loans having rates up to 17% and federal loans up to 8.05%. Credit cards, with limits typically between $2,000 and $10,000 and average rates of 19.64% as of Jan. 14, 2026, are for individuals with healthy spending habits.
Pros of unsecured loans include no collateral requirement, fast fund access, no asset loss risk, fewer borrowing restrictions, and competitive rates for strong credit. Cons involve potential asset loss, lower borrowing limits and higher rates for low credit scores, harder approval, and fewer options than secured loans.
Lenders assess risk by checking credit reports, credit scores (with FICO scores around 700 or higher for best rates), income proof, debt-to-income ratio, and assets. Many offer prequalification to check eligibility before formal application. Defaulting can damage credit and lead to legal action, but timely payments can improve credit scores over time.