What Is an Unsecured Loan And Should You Get One?

There are many different types of loans, but all of them are in one of two broad categories – unsecured loans and secured loans. Unsecured loans have become far more common in recent years due to increased consumer appetite for credit cards and the rapid growth of the personal loan industry. In this article, we’ll take a closer look at unsecured loans, how they differ from secured loans, and the pros and cons you need to know about.

What is an unsecured loan?

The key difference between unsecured loans and secured loans is that unsecured loans aren’t backed by any specific asset, while secured loans are.

Think of a mortgage loan. When you apply for a mortgage, the bank “secures” the loan with the home it is used to purchase. If you can’t (or don’t) make your mortgage payment, the bank has the right to foreclose on the home to recoup some or all of its money.

Secured loans are backed by things you own. The technical term for this is collateral. With property-specific loans like mortgages and auto loans, the collateral is the property the loan is used to buy. But it’s common to obtain a loan and pledge other collateral to secure it.

On the other hand, consider a credit card. Let’s say that you spend $5,000 on a credit card and are unable to pay it back. The credit card issuer can attempt to collect on the debt by calling you, referring your account to a collection agency, and reporting your missed payments to the credit bureaus. They can even sue you as a last resort. However, the credit card company cannot show up at your house and take the things you bought with the credit card, or any other specific assets. This is because a credit card is generally a form of unsecured debt.

Unsecured loans aren’t approved based on any collateral. Instead, unsecured loans are primarily based on you as a borrower. Lenders will likely take a close look at your credit score, income, employment situation, and other debts before approving an unsecured loan or unsecured credit line.

Examples of unsecured loans

Just to name a few, here are some of the most common types of unsecured loans:

Personal loans
Credit cards, other than secured credit cards as discussed in the next section
Student loans
Lines of credit, except home equity lines of credit

As you can see, there’s some gray area where a certain type of debt can either be secured or unsecured. Some personal lenders even offer secured personal loans, where the borrower is required to pledge collateral before receiving the funds.

Examples of secured loans

There are several types of secured loans consumers use regularly:

Mortgages, which are secured by real estate.
Home equity loans or HELOCs, which are also secured by real estate, but are usually in second position to a mortgage when it comes to a lender’s ability to foreclose.
Auto loans, which are secured by a vehicle.
Secured credit cards, which require the cardholder to put money in a savings account to serve as a security deposit.

These are not meant to be exhaustive lists. There are many other types of loans and debts you can have, and most are easily classified as either secured or unsecured loans.

Advantages of unsecured loans

The biggest advantage of an unsecured loan is that your property isn’t at risk if you can’t pay it back. If you can’t pay your mortgage, you can lose your home. If you can’t pay your auto loan, you can lose your car. But if you can’t pay an unsecured loan, the lender has to try to collect the debt through other means.

Think of it this way. A secured loan provides a safety net for the lender if you can’t pay. An unsecured loan provides a safety net for you. To be clear, you’ll still face consequences if you don’t pay an unsecured loan. But you aren’t likely to lose your home or your car because of it.

Drawbacks of unsecured loans

There are a few potential drawbacks to using an unsecured loan that you should keep in mind.

For one thing, it can be more difficult to get approved for credit if you’re looking for an unsecured loan. Because a secured loan has a built-in safety net for the lender in the event you can’t pay, they are generally considered less risky. This is why it can be easier to get an auto loan with bad credit than an unsecured personal loan.

In short, because there is no property being pledged, the focus becomes on how qualified you are as a borrower.

On a similar note, unsecured loans typically have higher interest rates than secured loans. For example, you’re more likely to get a better interest rate on a home equity loan than a personal loan, all other factors being equal. This is because the lender can foreclose on your home if you don’t pay the home equity loan, so it is likely to be a bigger priority to repay during tough times compared with an unsecured loan.

Finally, you might have a tough time getting a loan for the amount you need with an unsecured loan. For example, it’s rare to find an unsecured personal loan for more than $100,000, even if you have a phenomenal credit score and a high income. On the other hand, a home equity loan can be made for far more than that amount if the value of your home justifies it.

Should you get an unsecured loan?

Unsecured loans represent more of a risk for the lender, so it can be more difficult to get approved and get a favorable interest rate than with a secured loan. However, it can give you peace of mind to not have your assets at risk if you can’t repay the loan, and unsecured loans can be a great financial tool for many purposes.

Upstart Network, Inc. (NMLS #936133) is not a lender. All loans on its marketplace are made by regulated financial institutions.

All mortgage lending is conducted by Upstart Mortgage, LLC dba Upstart Home Lending. (NMLS #2443873). Equal Housing Opportunity.

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Unsecured Loans: While most loans through Upstart are unsecured, certain lenders may place a lien on other accounts you hold with the same institution. There may be an option to secure your personal loan through Upstart with your vehicle, which will require a lien to be placed on the vehicle. It is important to review your promissory note for these details before accepting your loan.
Loan amounts from $1,000 -$75,000: Your loan amount will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will qualify for the full amount. Minimum loan amounts vary by state: GA ($3,100), HI ($1,500), MA ($7,000). Maximum loan amounts may vary by state.
Closing and funding timeline: In April 2026, 10% of funded HELOCs achieved a closing timeline of 2 days or less and a funding timeline of 7 days or less. This timeline assumes consumers close with our remote online notary, provide supporting documentation promptly, and ensure the information provided is accurate and consistent with our verification process. Delays, discrepancies, and other unforeseen factors may impact the closing timeline. MBA’s 2025 Home Lending Study reports an average industry closing time of 37 days.
APRs from 6.2% – 35.99%, with 3 or 5 year terms: The full range of available rates varies by state. The lowest rates are only available to the most qualified applicants. A representative example of payment terms for an unsecured Personal Loan is as follows: a borrower receives a loan of $10,000 for a term of 60 months, with an interest rate of 17.50% and a 7.25% origination fee of $725, for an APR of 21.23%. In this example, the borrower will receive $9275 and will make 60 monthly payments of $252. APR is calculated based on 5-year rates offered in March 2026. There is no downpayment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will be approved.
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HELOC APRs as low as 6.52%: Terms shown here are subject to change without notice. APRs for initial advances range from 6.52% to 18.00% based on rates offered as of April 2026. The lowest rate is only available to consumers willing to become a member of a credit union and to those who meet a minimum FICO score of 780, CLTV under 70%, and DTI under 45%. Your actual rate will depend on many factors such as your credit history, combined loan-to-value ratio (CLTV), line amount, loan term, lien position, and property state. Origination fee to open an account is between 0% and 4.99% of the approved credit limit. The Annual Percentage Rate (“APR”) is variable and based on the Prime Rate as published in the Wall Street Journal “Money Rates” table plus or minus a margin. Your APR will never be less than 3.99% or greater than 18.00%. Property insurance is required.
No annual fee, prepayment penalty, or fees to redraw: Terms shown here are subject to change without notice. Origination fee to open an account is between 0% and 4.99% of the approved credit limit. The Annual Percentage Rate (“APR”) is variable and based on the Prime Rate as published in the Wall Street Journal “Money Rates” table plus or minus a margin. Your APR will never be less than 3.99% or greater than 18.00%. Property insurance is required.
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Fully automated loans: In Q2 2026. Percentage of Loans Fully Automated, which is defined as the total number of loans in a given period originated end-to-end (from initial rate request to final funding for personal loans and small dollar loans, and from initial rate request to signing of the loan agreement for auto loans) with no human involvement required by the Company divided by the Transaction Volume, Number of Loans in the same period.

What Is an Unsecured Loan And Should You Get One?