What is an Unsecured Personal Loan?

An unsecured personal loan is an installment loan that does not require the borrower to put up any collateral. This means that the borrower is not at risk of losing any property if they default on the loan. Read on to learn how unsecured personal loans work and the benefits they offer.

How do unsecured personal loans work?

Unsecured personal loans are typically issued by banks, credit unions, or online lenders. The loan amount, interest rate, and terms will vary depending on the lender. 

In addition, the borrower will need to fill out a loan application and provide financial information such as their income, debts, and authorize lenders to pull their credit report for review. Once the lender approves the borrower, the borrower will have the funds deposited into their account or receive a check by mail and will be responsible for making monthly payments.

Types of Unsecured Personal Loans

The two main types of unsecured personal loans are fixed-rate and variable-rate. Fixed-rate loans have an interest rate that remains the same throughout the life of the loan. This means that your monthly payments will never change, making it easier to budget for your loan.

Variable-rate loans’ interest rates can fluctuate over time. This means that your monthly payments could go up or down, making it more difficult to budget for your loan.

The Benefits of Unsecured Personal Loans

Unsecured personal loans come with several benefits. One of the biggest advantages is that you will not have to put up any collateral, which means that you will not risk losing any property if you default on the loan. 

Personal loans also offer convenient, manageable ways to make payments, all while making the funds fully accessible to you as soon as possible.

Another benefit is that unsecured personal loans can be used for a variety of purposes, including consolidating debt, making home improvements, or paying for unexpected expenses. 

How do you qualify for an unsecured personal loan?

There are a few qualifications that you will need to meet to be approved for an unsecured personal loan. The first is the borrower’s requirements for creditworthiness, meaning that you may need a credit score that is up to the lender’s standards.

Another qualification is that you will need to have a steady income. This can come from a job, self-employment, or government benefits. Finally, you will need to provide proof of your identity, such as a driver’s license or passport.

Credit history 

To qualify for an unsecured personal loan, many lenders require prospective borrowers to meet their requirements for creditworthiness. This means that you have a history of making on-time payments and have not had any major financial problems in the past. You may still be able to qualify if you have a low credit score, but this will likely mean you'll pay a higher interest rate.

Debt-to-income ratio

Your debt-to-income ratio is the amount of debt that you owe relative to your gross income. Lenders use your debt-to-income ratio to assess your “credit utilization” and to see whether you can afford to make your monthly loan payments with the amount of debt you currently owe.


To qualify for unsecured personal loans, you will usually need to meet certain income requirements set by your Lender. This can come from a job, self-employment, or government benefits.

Who should apply for an unsecured personal loan?

Unsecured personal loans can be a good option for people who have a good credit score and a steady income. If you are consolidating debt, paying emergency expenses such as medical bills, or paying for unexpected expenses, an unsecured personal loan can be a good option. However, responsible borrowers should always make sure they understand the terms of the loan before they apply. You will also want to compare interest rates and fees from different lenders to get the best deal.

Where can you obtain unsecured personal loans?

You can get an unsecured personal loan from a bank, credit union, or online lender. Each of these options has its own advantages and disadvantages, so it’s smart to compare them before you decide.


Banks are one of the most common places to get unsecured personal loans. However, they may require that you meet more rigorous creditworthiness and income requirements.

Credit unions 

Credit unions are nonprofit organizations similar to banks that provide financial services to their members. Some credit unions will allow you to borrow unsecured personal loans, although you will need to be a member of the credit union in order to qualify for a loan.

Unsecured Personal Loan Alternatives

There are a few other options that you can consider besides unsecured personal loans.

Credit cards

Credit cards can be a good alternative to unsecured personal loans, especially if you do not need a large amount of money from a loan. However, you will need to be careful of high interest rates and fees.

Personal line of credit

A personal line of credit is a revolving line of credit that you can use for a variety of purposes. You will only need to make payments on the amount that you borrow, making them a helpful option if you’re unsure how much money you need.

Home equity loan

If you own your home and have been making on-time payments on your mortgage, you may be able to qualify for a home equity loan. This is essentially a second mortgage that offers your home as collateral. Home equity loans usually have similar flexibility to unsecured personal loans. However, you risk losing your home if you can’t make your payments.

Find the right unsecured personal loan

If you’ve found that an unsecured personal loan is the right solution to meet your financial needs, Citi offers personal loans to both existing Citi customers and new Citi customers that meet specific eligibility criteria, including an established credit and income history along with additional factors determined by Citi. If you think you could benefit from a Citi Personal Loan, apply online today.

Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.

Additional Resources

  • Start your personal loan application now!

  • Learn how FICO® Scores are determined, why they matter and more.

  • Review financial terms & definitions to help you better understand credit & finances.