Overview

An unsecured personal loan is money borrowed from a lender that is not secured by property such as a house or car.  The loan is repaid over a fixed period of time. While most loans through Upstart are unsecured, certain credit unions 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.

Unsecured personal loans provide borrowers with a lump sum of money to use for various financial needs, such as debt consolidation, home improvements, medical expenses, or other large purchases.  Unlike credit cards, personal loans have a structured repayment schedule with a fixed interest rate, making monthly payments predictable.   

This guide explains how unsecured personal loans work, what to expect during the application process, and key considerations before borrowing.

1. How Unsecured Personal Loans Work

• Fixed Loan Amount & Lump Sum Disbursement
  
  • If approved for a personal loan, you receive a one-time lump sum payment.
  • The loan amount is based on factors such as credit history, income, and lender requirements.
• Predictable Monthly Payments
  
  • You repay the loan in fixed monthly installments over a set period, typically 3 to 5 years.
  • Payments cover both principal (the amount borrowed) and interest.
• No Collateral Required
  
  • Personal loans are unsecured, meaning they don’t require collateral (like a car or home) to qualify.
  • Loan offers are based on your creditworthiness, income, and financial history.

Example: A borrower takes out a $10,000 personal loan at a 7% interest rate for 5 years. Their fixed monthly payment is approximately $198, and they repay a total of $11,880 over the life of the loan.

2. What Can You Use a Personal Loan For?

Personal loans offer flexibility and can be used for a variety of expenses, including:

• Debt Consolidation – Combine multiple debts into one fixed monthly payment at a lower interest rate.
• Home Improvements – Finance renovations, repairs, or upgrades to your home.
• Medical Expenses – Cover unexpected healthcare costs.
• Major Purchases – Pay for weddings, vacations, or education expenses.
• Emergency Situations – Get funds quickly for urgent financial needs.

Some lenders may have restrictions on loan usage—always check your loan terms before borrowing.

3. The Unsecured Personal Loan Application Process

• Step 1: Check Your Rate (Soft Credit Inquiry)
  • You can check your rate online without affecting your credit score.*
  • The lender evaluates factors like credit history, income, and debt-to-income ratio (DTI).
• Step 2: Accept Your Rate and Submit Your Application
  • If you proceed, you’ll need to provide personal details, income verification, and bank information.
• Step 3: Hard Credit Pull
  • Before your final rate is presented to you for approval and signing of the promissory note, a hard credit inquiry is conducted which will impact your credit score.
• Step 4: Loan Approval & Signing documents
  • If you are approved, please review your loan agreements with details including:
    • Loan amount
    • Interest rate
    • Monthly payment amount
    • Repayment term
  • You will be presented with the Truth in Lending Act (TILA) disclosure and your promissory note.  Signing indicates your agreement to the loan terms.
• Step 5: Loan Funding
  • Once accepted, funds are typically sent to your bank account within 1–3 business days. When the funds will be available to you will depend on your bank’s transaction processing times and policies.

📌Note: *When you check your rate, we check your credit report. This initial (soft) inquiry will not affect your credit score. If you accept your rate and proceed with your application, we do another (hard) credit inquiry that will impact your credit score. If you take out a loan, repayment information may be reported to the credit bureaus.

4. Repaying Your Unsecured Personal Loan

• Fixed Monthly Payments – Your payment amount doesn’t change, making budgeting easier.
• AutoPay Option – Set up optional automatic payments to avoid missing due dates.
• No Prepayment Penalties – You can pay off your loan early without extra fees.
• Impact on Credit Score – Making on-time payments helps build your credit history.

If you want to pay off your loan faster, consider making extra payments to reduce interest costs.

5. Is an Unsecured Personal Loan Right for You?

An unsecured personal loan may be a good option if you:

• Need predictable payments with a structured repayment plan.
• Want to consolidate high-interest debt to save on interest.
• Have a good credit score and qualify for a competitive rate.
• Need funds quickly for a large expense or emergency.

However, personal loans may not be the best option if:

• You prefer a revolving credit option like a credit card.
• You don’t have a stable income to support monthly payments.

Next Steps

If you’re considering a personal loan, check your rate online to see your estimated loan terms with no impact on your credit score.

📌 Related Articles:

• Understanding Loan Terms: APR, Principal, and Interest Explained
• How to Pay Off Loans Faster and Save Money
• How Loan Applications Impact Your Credit Score