Best Unsecured Loans to Consolidate Debt
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While the best unsecured personal loans vary, they all help you do one thing – pay off debt. While you can use them for a range of things the top unsecured personal loans will help you become debt free quicker and save money in the process. Which, ultimately, is what we want to do, as it helps us achieve financial freedom and live the kind of life we want.
You may not know where to go to find an unsecured loan. There are many options to consider. That being said, this post will help you determine what the best unsecured loans are – based on your specific circumstance.
What Is An Unsecured Loan?
In basic terms, an unsecured personal loan is issued largely based on your creditworthiness. You do not put up any collateral. There is nothing securing the debt like with a mortgage or car payment. Thus, in most cases, the creditor can’t come after you if payments aren’t made – just as is the case with most unsecured credit cards. This begs the question of whether or not you need to have good credit to get an unsecured loan. In most cases, you will need to have a relatively decent credit score to get the best possible rates.
Besides the benefit of potentially saving money and paying off debt quicker, the main draw to most unsecured loans is the ability to have a fixed payment each month. In the case of credit card debt, there is likely a variable interest rate which means you don’t know what you’ll be paying each month.
The key to recognize is that an unsecured personal loan should not be used to make frivolous purchases. Sure, you could do that but it would be incredibly foolish. Rather, they should be used as a weapon to attack debt.
One final note about unsecured personal loans, there are many options to consider. If you’re trying to get the best personal loan for bad credit, you could be better served to stick with your local bank or credit union if you already have an established relationship. If that’s not an option for you there are many options online to consider.
The Best Unsecured Loans
It used to be that the best unsecured personal loans were available solely through brick and mortar banks. Everything banking related was handled through physical locations, even if they didn’t provide good options. The Internet has dramatically changed that.
By giving birth to a wide variety of different financial institutions, the Internet has leveled the playing field for consumers to find what works best in our given situations. This is not to say that in every instance an online institution is always going to be the best option available, as there are a lot of crappy options to wade through to find something decent. That fact must be kept in mind when looking for personal loans.
With that in mind, there are several options to consider if you’re looking to consolidate debt and get an unsecured loan. Some of those options are:
- Best unsecured loans – Prosper
- Best unsecured loans for excellent credit – LightStream
- Best unsecured loans for good credit – Payoff
- Best unsecured loans for average credit – Avant
- Best unsecured loans for student loan debt – SoFi
Each of these companies will be covered in detail later in the post. If you have bad credit, understand that it may be more difficult to get a loan, though not necessarily impossible. As with anything financial in nature, make sure to do your due diligence and find a firm that meets your needs.
Best Unsecured Loan Option Available: Prosper
The best unsecured loan provider, overall, is Prosper – one of the two large peer-to-peer lenders. Generally speaking, Prosper is a little more liberal in their extension of loans and requires a credit score of at least 640. As they do what’s called a soft pull of your credit you won’t see any negative impact on your credit score. Prosper looks at many different factors, so your rate isn’t based entirely off your score and thus still offers the potential to get a good overall rate.
Prosper offers a wide range of unsecured loan options – anywhere from $2,000 on up to $35,000. Prosper offers loans in 47 states (sorry Maine, North Dakota and Iowa) and offers competitive rates as low as 5.99 percent up to 36 percent. However, as with other peer-to-peer lenders you could be waiting up to a week or two to receive your funds.
- Extremely competitive rates
- Available in 47 states
- Those with average credit can still get a loan
- No hidden fees
- Relatively easy to apply
Drawbacks to Prosper:
- Have to wait to get funds
- Can only get three or five-year loans
- Origination fee of up to five percent
Top Runner-Up: Lending Club
Following Prosper, Lending Club is the next best provider for unsecured personal loans. Lending Club is the other major player in the peer-to-peer lending space. This brings about some similarities; though they’re different enough to warrant taking a serious look.
Lending Club is available in 49 states (sorry Iowa) and offers rates from 5.99 – 32.99%. Lending Club does look a little more seriously at DTI, so it could make them a little more difficult to get a loan from. The Lending Club website has a cleaner and easier feel to it than does Prosper if that is important to you. Check out the rates at Lending Club to see how much money you can save.
Lending Club Pros:
- Lowest rates available
- Easy to use website
- No prepayment penalty
- You can borrow up to $40,000 – $5,000 more than at Prosper
- Quick application process
Drawbacks to Lending Club:
- Origination fee of 1-6% as well as a potential check-processing fee
- Have to wait to get funds, just as with Prosper
Best Unsecured Loan for Excellent Credit: LightStream
If you have excellent credit and need an unsecured loan, LightStream is a good option to consider. LightStream, which is a division of SunTrust Bank, offers loans as low as 2.19 percent though it’s somewhat difficult to secure such a rate. In most cases, you’ll be able to get an unsecured loan between 5.99 and 9.99 percent, though the highest rate can be as high as 14.49 percent with AutoPay.
LightStream does not look for a specific credit score but is largely looking for those with good to excellent credit. What LightStream is looking for specifically is someone who has set a pattern of financial health – having no delinquencies, an established credit history of at least five years, stable employment and investments. The best part of LightStream is they do not charge any origination fees.
- Very competitive interest rates
- No fees
- Higher loan amounts – up to $100,000
- Same day fund availability
- Flexible repayment schedules between 2-7 years
Drawbacks to LightStream:
- Minimum available loan is $5,000
- May not be able to qualify
- Funds have to be used for the specific loan purpose
Next Best Option for Excellent Credit: Earnest
A solid backup for an unsecured loan with excellent credit is Earnest. Earnest is a newer company and is only available in 23 states, though it is growing. Earnest is different in two main ways. First, they work to match the amount you can pay back each month without tying you to a generic repayment schedule.
Secondly, Earnest makes a merit-based loan decision, meaning they look at things like employment and overall financial healthiness. Earnest is honestly geared more towards younger borrowers looking to consolidate debt and offers loans up to 30 years with a competitive rate of 4.25-9.25%
- Ability to set your own payment
- Very competitive rates
- Funds available within two days
- Merit-based decision model
Drawbacks to Earnest:
- Only available in 23 States and Washington D.C.
- Hard inquiry on credit report
- More stringent application process
Best Unsecured Loan for Good Credit: Payoff
The best unsecured loan for good credit is a newer player in the space – Payoff. While Payoff has been around since 2009, they went through a rebrand in 2014 and now offers loans in 30 States. The main goal at Payoff is to help people refinance their credit cards in order to achieve debt freedom.
Although Payoff is not a true P2P lender like Prosper or Lending Club, they have private funding to meet your loan needs of anywhere between $5,000 and $35,000. In most cases with Payoff, you’ll be able to get a rate between 6% (8% APR) 19.65% (22% APR). Payoff requires a FICO score of at least 660, a DTI of less than 50 percent and at least three years of credit history.
Payoff is different in two main ways. First, there are no prepayment fees, no loan origination fees, etc. though there is a Payoff Platform fee that ranges from 2-5% based on the length of the loan. Payoff offers installment loans that range anywhere from 2-5 years. The second difference is that after your loan is approved, Payoff assigns a member advocate to you. This advocate is your personal resource whenever you have needs, questions or concerns. With Payoff, your member advocate helps you achieve success.
- Only does a soft pull on credit report
- Payoff helps customers refinance and pay off balances of $5,000 to $35,000
- Relatively low rates
- Can get loan with a FICO score as low as 660
- Unique 24, 36, 48 and 60 month loan options let you customize your payoff plan
- Personal member advocate assigned after loan approval
Drawbacks to Payoff:
- Takes 5-7 business days to receive funds in bank account
- Only available in 30 States
Best Unsecured Loan for Average Credit scores: Avant
The award for the best unsecured loan for average credit goes to Avant. Like Earnest, Avant is a newer player in the unsecured personal loan space though they stand above the rest. Avant is a bit more forgiving on the credit score requirement, extending loans to those having scores as low as 580. They also offer loan amounts up to $35,000.
Though they’re younger, Avant is available in 46 states (sorry Iowa, Maine, North Dakota and West Virginia). Where Avant really sets themselves apart is by giving funds as quick as the same day and offering loans for as short as one year up to five. The rates are a little on the higher end, starting at 9.95 percent on up to 36 percent, though with lower credit scores you’re much more likely to see that.
- No loan origination fees
- Flexible repayment schedule
- Same day fund availability
- Wide availability
- Soft pull on credit
- No prepayment penalties
Drawbacks to Avant:
- Newer lender
- Potentially higher rates with lower credit score
Next Best Option for Average Credit Scores: Peerform
The runner-up for the best unsecured loan with average credit is Peerform. Peerform, like Avant Credit, allows you to get an unsecured personal loan with a credit score as low as 600 for up to $25,000.
The rate at Peerform is somewhat better than that found at Avant with rates starting as low as 7.12 percent on up to 28.09 percent. However, where Peerform falls short is with fees – charging both a loan origination fee as well as a collection fee.
- Lower rates than Avant
- Can get a loan with a 600 credit score
- Can borrow up to $25,000
Drawbacks to Peerform:
- Only available in 23 States
- Can take up to two weeks at times to receive money
- Charge too many fees
Student Loan Option: sofi
The final unsecured loan provider to look at is SoFi. SoFi stands for SocialFinance and they’ve taken the student loan world by storm. My favorite feature of SoFi is fixed rates start at 3.5% and variable rates start as low as 1.9% – if you sign up for auto pay. Considering the rate on an Unsubsidized Federal loan is 6.8% that can result in a significant savings. Federal loans aren’t the only loans you can consolidate with SoFi – private student loans can be rolled in as well.
While SoFi requires an “excellent” credit score, a current job, as well as graduation from a Title IV accredited institution they have no fees. That’s right, no fees. No pre-payment fees or origination fees which is great to see. It is important to point out you must have at least $10,000 in student loans to consolidate through SoFi. Don’t have student loans but still want a low loan rate? SoFi offers mortgages as well, to those that qualify. If you sign up through this link you can also qualify for a $200 bonus when you consolidate through SoFi. If you want an alternative to SoFi, you can also check out LendKey, which has rates as low as 3.28% APR.
Who Needs to Use an Unsecured personal Loan?
As was touched on earlier, there should be one purpose behind getting an unsecured personal loan – achieving financial freedom. It can be very easy to justify taking out a loan because the funds are available and using them on something frivolous that will only further the cycle of debt. If that’s the case for you, look the other way and save for said expense. You can do so with a bank like Barclays Bank as they pay 1% on savings accounts, with no minimum balance.
However, unsecured loans can be good to consider in some instances – such as:
- People wanting lower interest rates
- Those wanting to consolidate debt into one simple payment
- People not having luck with a traditional bank
A common question is whether or not you need good credit to get the best unsecured loans. While a higher credit score will generally get you a better rate there are options to consider for those needing a personal loan with bad credit – you just need to shop around to find those options. As one who dealt with paying off debt personally and spent some time looking at unsecured loans as an option, doing your due diligence is vital.
How to Find the Best Unsecured Loans
Unfortunately, there are a lot of scams out there in the unsecured loan space. Please don’t fall for them. This is not something you want to make a rash decision about, as there are many things to consider when getting a personal loan.
The only real way to find the best unsecured loans is to shop around. Take your time looking at various lenders, at both online (peer-to-peer) and brick and mortar financial institutions. You may find that the best loan rates are available through the former option, but it still pays to do your homework.
There are tools available, like PersonalLoans.com, which matches you with the best personal loan provider available or you can go to some of the companies listed here. If you’d rather not go the loan route, and you have credit card debt, you can also consider a balance transfer card to get relief and pay off the debt quicker. Here are some of the best balance transfer cards to look at to save money while paying off debt.
What to Watch Out for With Unsecured Loans
As mentioned above there are a lot of things to consider when taking out an unsecured loan. This is largely due to the scammy nature in the industry, not to mention taking on a loan. If you’re considering an unsecured personal loan, following are some of the things to be on the look out for:
- Low rates – the last thing you want is to pay an overly high rate. That’ll only extend the life of your loan.
- Little to no fees – origination fees can be hard to avoid, but it is possible. There are other fees to keep in mind, be aware of them as the only bring added cost.
- Transparency – the site should be very clear about what the loan process is like. Their rates should be clear and communicate the process simply. This should also be the case when you call their customer service area as well as in mailings.
- Flexibility – not everyone has the same need. You want to pick a loan provider that’s going to provide flexibility. If they don’t offer it, look elsewhere.
- Loan limits – this really only applies if you need to consolidate a sizable amount of debt. You want to be able to stay with one lender for sake of ease.
- Watch out for scams – never agree to pay anything upfront or fall for some sort of guarantee. Verify all the information they provide and run the other way if they aren’t willing to explain everything clearly.
When researching for the best unsecured loans, the top ones were Avant, LightStream, Prosper, Lending Club and SoFi. By no means are they the only ones you should look at – in fact you should look at all the options available to you, even physical financial institutions.
If you’re dealing with debt I understand the desire to knock down your rate and get started paying it down as soon as possible. That makes complete sense. Just make sure not to allow your desire to backfire thanks to not doing your due diligence to find the best loan provider possible.
Additional resource: If you need a simple way to track your spending and stay on top of your finances, check out my favorite financial tool – Personal Capital. Personal Capital allows you to monitors all your accounts in one place to better manage your finances. The best part of Personal Capital is that it’s completely free to use. I use it to manage our finances and love how it saves me time and makes financial management much simpler.
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