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What is an unsecured personal loan?

You might have seen TV ads talking about unsecured loans, collateral, and creditworthiness, and got really confused. There are tons of strange terms thrown around in the mysterious world of finance, but don't worry. We're here to help you make sense of it all.

Keep reading to learn about unsecured personal loans, secured loans, no credit check personal loans, small loans with no credit check...and everything in between.

Unsecured personal loans explained

An unsecured personal loan is money you borrow without promising to repay with a valuable asset used as collateral should you be in a situation where you are unable to repay. This type of loan is usually for between $1,000 and $50,000.

There are still penalties for not repaying, but you don't risk losing your car or home. Still, if the idea of tanking your credit rating or going to court doesn't appeal to you, making repayments in full and on-time is highly recommended.

With most unsecured personal loans, you borrow a sum of cash (capital) and receive a fixed interest rate. Interest is the money you pay on top of what you borrow so the lender can make a profit and stay in business. You enter into an agreement with the lender to repay the loan plus interest over a fixed period—typically between 3 and 7 years.


Before you get excited and apply for unsecured loans with the enthusiasm of a BTS stan shopping for merch, here are some important things to consider:

  • Do I really need that new swag? Taking out an unsecured loan to cover an emergency home repair or unplanned expense is one thing. But taking out finance to buy a new iPad or pair of shoes is a whole different story. If it's something you could save up and wait for, you might want to do that instead.

  • Can I afford the repayments? Remember, if you take out a loan, you're going to pay back more than you borrow. Taking on snack-sized monthly repayments over a longer period might feel manageable, but you're usually paying back more interest the longer the loan term.

  • What am I using the loan for? Many lenders ask what you plan to use the loan for, so make a plan before applying. Home improvements, auto repairs, debt consolidations, and weddings are popular reasons people apply for personal loans with no credit check.

Types of unsecured loan

There are a number of different types of unsecured loans. Let's look at some of the most popular:

  • Credit cards: With most credit cards, you pay a bill every month and get charged extra interest if you don't repay the full balance.

  • Signature loans: You can use this type of loan for a bunch of reasons, but common categories are debt consolidation, emergencies, and discretionary expenses.

  • Lines of credit: Like a credit card, you receive an approved line of cash that you can use to fulfill practically any whim or desire. And—bonus—you only pay interest on what you spend.

  • Student loans: Private lenders and the government offer unsecured personal loans to help you level up your education and become your best self.

Who are loans good for?

Before applying for a loan, especially bad credit personal loans with guaranteed approval, take a long hard look in the mirror. If you're the sort of person who lets money control them rather than someone who controls their money, this might not be a good idea.

The cookie-cutter version of someone who a loan is ideal for has these traits and priorities:

  • A credit rating that would make Graham Stephan proud

  • Reliable income that's not due to change any time soon

  • Interest in spreading the cost of a large purchase over a longer period and the means to make repayments

  • Ability to consolidate debt to reduce how much interest you pay

Unsecured loan eligibility

Now that you've had the inside scoop on who's best suited to take out a loan, let's look at what the suits expect from a borrower:

  • Credit rating: Your credit score is a magical number that tells banks everything they need to know about your ability to pay back loans. The cool part is, the higher the score, the less interest you pay when borrowing. If that's not a reason to build an awesome credit score, what is?

  • Debt-to-income ratio: In other words, what percentage of your monthly income is going straight back out to repaying debts? Most lenders think less than 40% is a safe bet.

  • Assets: While unsecured loans aren't 'secured' by your hard-earned assets, lenders might still see a lack of savings or high-value assets as a red flag.

  • Recent transactions: Some lenders might take a peek at your recent transactions to see if your monthly budget can handle the pressure of more debt.

What's the difference between secured and unsecured personal loans?

In science, they say every force has an equal and opposite reaction. Think yin and yang, up and down, empty and full. The equal and opposite of an unsecured loan is, you guessed it, a secured loan.

What is a secured loan?

A secured loan involves agreeing with a lender that you'll use something valuable, such as your home or car, to use as collateral to repay a debt if you don't meet the repayment terms. Lenders take less risk with this type of loan, which means they can offer tastier interest rates.

Below are more differences between unsecured and secured loans.


Without the sweet cushion of one of your assets to fall back on, lenders offer lower amounts for secured vs. unsecured loans. Generally speaking, you won't find an unsecured loan for more than $50,000, although many lenders' maximum is lower than this.

When it comes to mortgages and other big-time secured loans, you might be able to borrow up to $5 million. However, the amount you're eligible for will depend on your income and credit score.


You pay back both secured and unsecured loans over a fixed term, usually in monthly installments. That's pretty much where the similarities end.

With a secured loan, the interest rate you pay can change depending on the federal interest rate. They also have repayment schedules that can stretch on for longer than it takes George R. R. Martin to release a new Song of Ice and Fire novel. Of course, you won't lose a major asset if you can't repay an unsecured loan, but you can with a secured loan.


Weddings and electrical appliances are common reasons consumers take out unsecured loans. Think of things that'd put a big ol' dent in your monthly income if you paid for them all at once but don't require life-changing sums of dough to cover. Unsecured loans are bigger beasts, often used for renovations, property purchases, and big-time debt consolidation.

Types of secured loans

Here are examples of the various types of secured loans:

  • Mortgage: Mortgages are the most popular type of secured personal loan, and they're usually repaid over 15-30 years. The lender pays for your property, minus your deposit, and you make monthly repayments over the agreed period.

  • Auto: Banks and car dealers offer auto loans, which are usually secured against the vehicle itself.

  • Home equity line of credit (HELOC): A HELOC lets you borrow money against your home, which is risky but necessary in some circumstances.

  • Boat: Similar to an auto loan, a boat loan is finance for a yacht or dinghy. Whatever you can afford, player.

Pros and cons of unsecured loans

Aside from bad credit personal loans with guaranteed approval, there's really no such thing as a good or bad loan. Each type of finance has advantages and disadvantages and is best-suited to a different type of borrower.

Here are some pros and cons of unsecured loans:


  • Anyone can access an unsecured loan, whether you're a ballin' homeowner or humble renter.

  • Proof of income and a quick credit check are usually all that's required to get an unsecured loan, so you can get cash fast.

  • There's usually a decent amount of flexibility.


  • Unsecured loans are risky for lenders, so they're loaded with higher interest rates and shorter repayment schedules.

  • An unsecured loan is usually smaller than a secured loan.

  • They might have an early repayment charge which means you're fined for paying early.

Pros and cons of secured loans

Secured loans are safe for lenders because they have something to fall back on if you can't pay your loan back. They're also more attractive because of their lower interest rates. But keep in mind that they're riskier for you as the borrower.

Let's look at more pros and cons:


  • You can use them for a wide range of purposes.

  • Your credit score isn't the be-all-end-all of getting approved.

  • Repayment schedules are longer, which means smaller monthly repayments.


  • You could lose your home and end up living like Will Smith in the movie, Pursuit of Happyness.

  • Taking longer to repay usually means spending more on interest overall.

  • You could get into a sticky financial situation if you don't make your repayments in time.

Do no credit check personal loans exist?

If you have bad credit or no credit history, you might be tempted to go for a bad credit personal loan. But beware, because no credit check personal loans do exist, but they're usually eye-wateringly expensive. They might have triple digital interest rates and restrictively short repayment terms that keep you locked into a never-ending debt spiral.

You might have heard of payday loans, which are the most common type of bad credit loans with practically guaranteed approval. With this type of loan, there's a high price to pay. It's only safe to take out this type of loan in an emergency, and not for treats or luxuries.

Beware of bad credit personal loans with guaranteed approval

Lenders are in business to make money, so why would they give someone who can't afford to repay a loan without checking their ability to pay back? The answer is simple: to make a profit. But to ensure they make money, they have to charge super high interest.

There are lots of occasions when it might be tempting to take out a loan you can't afford, but getting into bad debt is stressful.

Small loans no credit check: safe alternatives

Thankfully, there are small loans with no credit check that won't put you in the same financial situation as Mike Tyson in 2004.

Let's look at some alternatives to bad credit loans:

  • Varo Advance: Lets you begin with $20 to $250 advances and then work your way up to $500 over time¹.

  • Salary advance: If your employer is up on game and signed up to a salary advance service, you might be able to access your own income before it's paid out—but you can expect to pay a fee. Varo’s Early Direct Deposit enables you to access your hard-earned paycheck up to 2 days early².

  • Friends and family: Sometimes, the bank of mom and pop is the safest borrowing option.

Nothing in life is perfect. As much as an unsecured personal loan sounds like free money, there's always a catch. Fees and interest can quickly snowball if you don't have a tight grip on your finances. Take care of future you by working hard and saving money to avoid getting into a debt cycle of doom.

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