Unsecured personal loans don’t require collateral, which makes them an alluring alternative for homeowners who don’t want to put their home on the line with a home equity loan or home equity line of credit (HELOC). However, secured personal loans do exist, and they may offer an affordable alternative for borrowers with fair or worse credit.
Since personal loans are typically unsecured, personal loan lenders rely heavily on an applicant’s financial profile — such as their credit score and debt-to-income ratio — when determining eligibility. Good-credit borrowers will see lower APRs than fair- and bad-credit borrowers. (Annual percentage rate, or APR, represents the cost of borrowing a loan over the course of a year. A lower APR indicates a cheaper total loan cost.)