Unsecured loans are installment loans that aren't secured by any type of collateral. Most people are familiar with secured loans, such as vehicle loans. These loans are secured by the property they're used to purchase — for example, if you default on your auto loan, the bank can take the car back to help cover its losses. Unsecured personal loans are secured by nothing more than your promise to pay.

Because they aren't secured by actual property, unsecured personal loans tend to have higher interest rates than secured personal loans. This is because the lender is taking a bigger risk than it would with a loan secured by something it could take back and sell to recover losses.

The interest rate on personal loans can vary from as low as around 7% for people with excellent credit to more than 100% for people with poor credit. It's critical to understand your interest rate when you accept a personal loan, as this impacts how much the loan will cost you in total.

The amount of personal loans varies depending on the reason for the loan, the lender's policies and the creditworthiness of the borrower. If you have great credit and a high income, for example, you may be able to get approved for a fairly large personal loan. On average, though, these loans tend to fall on the smaller side, with averages running around $8,000.

The amount you pay every month for the loan depends on how much you borrow, your interest rate and the terms of the loan. The term is how long you take to pay off the loan. A 60-month loan term is a 5-year loan with monthly payments.

Reasons people take out personal loans include:

• Debt consolidation
• Home improvement projects
• Medical Bills
• Large purchases
• Moving
• Weddings
• Education
• Vacations

What Do I Need for a Personal Loan?

Many providers of unsecured personal loans for bad credit check your credit, even though you don't necessarily need good credit to get approved. They still want to know where they stand with their borrowers.

So, that's a good first step for you to take too. Check your credit reports and your scores to see where you fall, as this gives you some indication of the types of personal loans you might be able to get. Start with the free credit report card at Credit.com.

If you don't know how to apply for a personal loan, that's ok. The process is easy. You can find out more about it or simply follow the prompts when you select a lender. You can typically apply online with the following information:

• A photo ID, such as a driver's license
• Information about a checking or savings account, including routing and account number, for funding of the loan
• Your full name, address and phone number
• Documents demonstrating your income, such as W2s or check stubs

What Happens After I Apply?

The exact details of what happens after you apply depend on the processes of the lender. However, it tends to go something like this:

• Computer programs may run initial approval checks: If you don't meet credit or other conditions, such as residency requirements, you're usually notified almost immediately that you can't be approved for the loan. If you do meet the initial requirements, your application moves on to the next step.
• A person may need to review your application and documents: You may be asked to submit additional documents to prove your income, for example. After you apply for a loan, ensure you're available to answer phone calls or emails to handle any additional requests.
• You'll receive an offer or multiple offers: Once you're approved, you'll receive an offer that details the amount of the loan, the interest rate and the loan terms. Review the details carefully before you sign up for the loan so you understand when and how you have to pay it back. Some online personal loans are approved within minutes, though you should expect the entire process to take a day or two. Once you're approved and the loan is finalized, you may receive funds into your bank account within 24 to 48 hours, depending on the lender.

Bad Credit Unsecured Personal Loans

Unsecured loans for bad credit are possible. You may not be able to borrow as much as someone with good credit, and you may end up with an offer with a high interest rate. However, by paying the loan off as agreed and making all your payments on time, you may increase the positive payment history on your credit reports. That can lead to a higher credit score in the future and better financial opportunities.