A Guide to the Best Unsecured Personal Loans

Sometimes life throws you a financial curveball and securing a loan to smooth things over can at times be easier said than done. A popular option is to look for unsecured personal loans—offered by many of the best personal loans providers. These are often easier to get than secured loans, though there are some guidelines to keep in mind before moving forward.

The main difference between a secured and unsecured loan is that with a secured loan you put down some sort of collateral – such as your house or a car – which the bank can seize if you are delinquent on your debt. There is no such collateral with an unsecured debt, and gaining approval for an unsecured loan can often be easier.

Best Unsecured Loans


Pros and Cons of Unsecured Loans

The clearest benefit of an unsecured loan is that you don’t need to borrow against any of your own assets. This makes unsecured loans a reliable option for people who don’t own property or any other sort of collateral, but who still need to take out a loan. The lack of collateral does bring with it higher risk. This risk tends to be passed on to the borrower, who is saddled with higher interest rates and a shorter repayment period for the loan. This can mean that while you are able to receive a loan quickly without having to risk any personal assets, you may face monthly payments that are difficult to make. Missing these payments could affect your credit score, potentially harming your financial future.

Also, because they are riskier, the ceiling on these loans tends to be lower. That’s part of the reason that unsecured loans are often the loan of choice for people who just need a small amount of money.

ProsCons
  • No collateral
  • Better for small amount of money
  • Higher interest rates due to higher risk
  • Shorter payment period, higher monthly payments
  • Can be difficult to qualify with bad credit

What to Consider

If you’ve decided to take out an unsecured loan, chances are you don’t need an especially large amount of money. Look at your monthly income and expenses and figure out an estimate of how large a monthly payment you can make.

Make sure to look at the annual percentage rate (APR). This refers to the yearly rate charged for a loan, and typically it is shown as a percentage that corresponds to the total yearly cost of the loan. While unsecured loans tend to have higher APRs, shop around some and you can find one that’s easier on your budget. You should also check whether or not your loan has a fixed or variable interest rate.

With a fixed interest rate your monthly payments will always stay the same, but you won’t benefit from interest rate drops and you’ll be limited in your options for additional or early repayments. Variable interest loans allow you to pay off the loan early with extra payments if you’d like and you can benefit from reduced mortgage rates over the lifetime of the loan. That said, you lose out on the reliability of a fixed loan.

One of the main ways that people attain unsecured loans today is through peer-to-peer (P2P) loans, which match lenders with borrowers online, bypassing the traditional financial institutions. Going this route is beneficial in that it allows you to shop around with a wide variety of lenders, helping you find the terms that are best for you.

If you’re still unsure about taking an unsecured loan, take a look at some industry leaders to get a sense of the bottom line.


Industry leaders at a glance

LenderAPRLoan TermCredit Score
LendingTree5.99%-35.99%3-180 monthsFair +
5.49%-14.49%36-84 monthsGood +
4.93%-35.99%24-84 monthsFair +
5.99%-35.89%36-60 monthsFair +
15.49%-35.99%24-48 monthsFair +

LendingTree

LendingTree​ is a major industry leader which for over two decades has helped people attain all sorts of loans online. LendingTree isn’t a financial institution of its own, but facilitates loans between lenders and borrowers. You punch in your details and what you’re looking for, and LendingTree does the leg work and finds loans that can answer your needs.

LendingTree is an easy and trustworthy site that can help people looking for small unsecured loans, or even loans for as much as $1 million.

One of the high points of LendingTree is the sheer scale on which it works, finding you loan options for everything from medical expenses to debt consolidation. Because there are so many lenders competing through the site, you should be able to find some very friendly interest rates.

ProsCons
  • Large range of lenders
  • Wide range of payment options
  • Sometimes too many lenders and rates offered
  • You may receive frequent contact from competing lenders

Visit LendingTree


SoFi

SoFi is used to dealing with borrowers with less than ideal financial credentials. The company was founded in 2011 to help students repay student loans, one of the classic forms of unsecured personal loans. One of their most appealing features is unemployment protection, which will freeze your payment cycle if you lose your job, possibly saving you from getting behind your payments.

Though the company caters to students and young professionals, you will still need a pretty healthy credit score of 660 to qualify, however.

In an added feature, SoFi provides financial planning assistance for customers, to help them achieve stability.

ProsCons
  • Unemployment protection
  • Loans up to $100,000
  • Flexible loan terms
  • Minimum 660 credit score, proof of income required
  • Minimum $5,000 loan

Visit SoFi


GuidetoLenders

If you’re looking for a quick, small-scale loan with flexible rates, Guidetolenders​ is a smart way to go. Like with other companies, you specify the size of the loan you need and the company will shop around and find one that works for your budget.

Guidetolenders has a simple application process and is flexible enough to handle loans as small as $1,000, though if you need a loan larger than $40,000 you’ll need to look elsewhere. That said, the payment plans offered are more varied than with other companies, and range from 24 to 84 months. Also, with the competition between lenders, you should find competitive rates.

ProsCons
  • Flexible payment plans for quick loans
  • One application for several lenders
  • Limited customer support
  • Rates not guaranteed

Visit GuidetoLenders


LendingClub

One of the largest, most-successful P2P lending companies, LendingClub​ is known for providing quick, flexible loans ranging from $1,000 to $40,000.

The company has received high marks for customer service, and for an online knowledge base that should be able to walk you through most questions. In addition, they specialize in consolidating debt, so if you’re looking to simplify your debt and get it all under one roof, LendingClub should be one of your top options.

Because the company operates without any physical infrastructure, costs are kept low, potentially helping you save money. Not only that, the online application is easy and takes just minutes to complete.

ProsCons
  • No hidden fees, easy to use
  • Quick loan approval, low APR
  • Free interest rate quote
  • Said to act quickly on missed payments
  • Credit score of 660+ required
  • Application requires tax records

Visit LendingClub


LendingPoint

If you have a poor credit score, LendingPoint could be the way to go. LendingPoint caters to people who have been turned down due to a low credit score and offers flexible payment terms of between 24 and 48 months.

The company has also received praise for speed. Loans can be approved and sent by wire within 24 hours, truly setting LendingPoint apart from the crowd.

On the other hand, because it works with low credit borrowers, LendingPoint tends to charge higher than usual interest rates in order to make up for the risk, as well as a 5% origination fee. Before taking on a loan from LendingPoint, make sure to map out the best payment plans for you, in order to insure that you don’t get behind in the payments and face the higher interest rates.

ProsCons
  • Loans sent quickly – some within a day
  • Good for low credit score
  • Flexible loan terms
  • APRs can be high
  • Origination fees can be high

Visit LendingPoint


Conclusion

Unsecured loans carry risks for lenders and borrowers alike. The interest rates tend to be high, and if you miss a payment you can hurt your credit score and your financial stability down the road. That said, these loans can be a real lifesaver for people who need money for an investment and simply don’t have the collateral to put down at the bank. Most importantly, these days there is a whole world of online lending companies where the consumer can call the shots. Read reviews of the top lenders to help you decide which one to use, and you’re on your way.

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