Unsecured Loan

Personal Loans

Unsecured personal loan: When it’s a smart way to borrow

Jan 30, 2023

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Key Takeaways:

  • An unsecured personal loan is based on your creditworthiness and does not require collateral

  • Credit card debt is also unsecured but tends to cost more

  • You could improve your chances of getting the lowest possible interest rate on an unsecured personal loan by having a higher credit score, getting a co-signer, or applying for discounts offered by lenders.

Did you just look at your bank account and say, “Where am I going to find the money to pay for that?” The new refrigerator, the medical procedure that is going to cost an arm and a leg, the soccer camp, the auto repairs… Okay, the list goes on, and everyone has their own issues and pursues their own dreams.

Before you pull out your credit card or go down to the local pawn shop, take a look at how an unsecured personal loan could help you meet your financial goals.

Not sure how? We’ll break it down.

What is an unsecured personal loan?

An unsecured loan is a loan you get based on your creditworthiness. Unlike secured loans, which provide money to borrowers with assets (mortgages and cars, for example), unsecured loans do not require any assets or collateral. 

Unsecured personal loans are considered installment loans. That means you borrow a set amount at a fixed interest rate that won’t change for the life of the loan. That’s really important in times when interest rates go up. You’ll pay off the loan in equal monthly payments over a time period that is determined when you get the loan.  

Unsecured loans can be harder to get than secured loans. That’s because with a secured loan, if you default the lender gets your collateral. With an unsecured loan, they would be stuck with the loss. So the rates are typically higher for unsecured loans compared with secured loans. You will still need to go through the qualification process to get this type of loan. But if you have a history of repaying your debts and your credit score is fair or better, you might qualify for an unsecured loan.

How do unsecured personal loans compare to credit cards?

Did you know that your credit card charges are actually loans? It’s true. They are another kind of unsecured loan since there is no typically collateral that the credit card company could take if you don’t pay your balance.

However, there are several important differences between an unsecured personal loan and credit card charges.

Loan amount versus credit limit

Instead of a fixed loan amount, you get a credit limit for your credit card loan. The credit limit is the most you can owe. Credit cards are also known as revolving credit because as you pay off your charges, you can make more purchases. In this way, borrowing and spending can go on indefinitely. An unsecured personal loan doesn’t work that way. You’ll borrow money one time, and there’s a clear plan for payoff.

With a credit card, after each billing cycle, you could choose to pay off all of your charges or carry the balance over to the next month. If you have a balance on your credit card, you will need to pay a minimum amount each month. That could be much less than the required monthly payment amount for an unsecured personal loan.

If your payment is less than what you owe on your credit card, you’ll usually pay interest on the unpaid balance. Credit card interest rates are variable, which means they fluctuate, depending on the economy. It’s normal to have a credit card interest rate that’s 20% to 36%.

Unsecured personal loans also charge interest, but the interest rate won’t change, and it could be much lower than the rate on your credit card. 

The loan amount for unsecured personal loans could be anywhere from $1,000 to $100,000, but most tend to range from $5,000 to $50,000. The repayment period is typically between two and five years, but some lenders offer longer options. Credit limits on credit cards start as low as $200, and the average is about $30,000. The repayment period could go on…well, forever.

Here’s a quick way to see the differences between unsecured loans and credit cards:

Unsecured Personal Loan

Credit Card

Set interest rate

Variable Interest rate

Specific loan amount

Revolving credit limit

Up to a 5-year loan period

Ongoing loan

Typically $5,000 to $100,000

Based on credit limit

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What are common uses of an unsecured personal loan?

You could use an unsecured personal loan for many types of expenses and purchases. Here are some common uses for an unsecured loan.

  • Pay down higher-interest rate debt. You know how we mentioned that credit card interest rates are generally pretty high? An unsecured personal loan is one way to pay off your credit card balance at a potentially lower cost.

  • Make home improvements and repairs. Homeowners, and some renters, have all kinds of expenses. Sometimes they’re planned, like when you want to update your kitchen or bathroom. Other times, they’re unexpected—like when your air conditioner breaks down in the middle of summer and you need to replace it ASAP. Either way, it can be hard to have enough savings to pay for everything you want to do in your home. Some expenses, like a new roof, are really high, possibly even higher than your credit card limit, and may require an unsecured loan.

  • Pay for “Life Happens” events. Unexpected expenses like medical bills or funerals happen. So do good things, like weddings or moving to a new home. An unsecured loan could help you with life’s financial ups and downs.

  • Fund a small business. If you’re a small business owner, you know that cash flow is critical. While you could use credit cards to finance your business, an unsecured personal loan could be a smart way to get access to much-needed cash.   

What are the rates for an unsecured personal loan?

The interest rate for your unsecured personal loan will depend on your credit rating. When you research loans, ask about personal loan interest rate discounts that could lower your cost, including:

  • Co-borrower discount: Your besties (friends and family) could help you out by becoming a co-applicant along with you. You apply together, and if the loan is approved, you are both responsible for repayment. This could help reduce the risk to the lender, and that in turn could lower your rate.

  • Retirement asset discount: Saving for retirement? Good for you—and it’s good for your possibility of a discount, too. If you can provide proof of retirement funds in a 401(k), IRA, Roth IRA, or other retirement fund, lenders know that you have backup funds that could reduce your risk of default.

  • Direct pay discount: If your loan money is going towards debt payoff, consider letting your lender send the funds directly to the creditor. Some lenders offer a discount when you do.  

You could apply for all three of these discounts for an Achieve personal loan, for potential  savings. 

How do I apply for an unsecured personal loan?

Got five minutes? That’s all it takes to fill out a free loan application. Talk to a loan consultant. You’ll get an answer in 24-72 hours.

Want some help? Call us at 1-800-920-0045, and one of our Achieve Personal Loan specialists will walk you through the process.

Author Information

Margie is a freelance personal finance and retirement writer for AARP, The New York Times, Fortune.com, Next Avenue, and more.

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Reviewed by

Kimberly is Achieve’s senior editor. She is a financial counselor accredited by the Association for Financial Counseling & Planning Education®, and a mortgage expert for The Motley Fool. She owns and manages a 350-writer content agency.

Frequently asked questions

A secured loan requires collateral. Collateral is something valuable that you pledge as a guarantee that you’ll repay the loan. If you don’t repay the loan, you could lose the collateral. A common example is a house, which is the collateral for a mortgage. Collateral is a financial safety net for the lender.

With an unsecured loan, you qualify based on your credit standing and the financial information you provide. If you fail to repay the loan, the lender can’t take anything you own to cover its losses. Of course, they could (and probably will) pursue you in other ways for repayment of the loan.


Because they aren't attached to collateral, unsecured loans are a little riskier for the lender than secured loans. If something happens and you don’t repay the loan, the lender could lose money. In general, we pay more for financial products that lenders consider riskier. So if you were to shop on the same day for an unsecured personal loan and a car loan, the average interest rate for car loans would probably be lower than the average rate for personal loans.

When you apply, tell the lender you have a co-applicant. This is usually a box to check when you apply online. It only takes a few minutes to fill out an online loan application. The lender will verify both people’s identities and income and will check both people’s credit.




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