What is a signature loan?
A signature loan is a great option if you don’t need to put up collateral such as your home or car. A signature loan is subject to high interest rates and fees. It’s based on your income, credit score, and credit history.
Although you only need a signature is a quick way to get cash fast, it doesn’t always make the best choice. Before you sign the contract and put your credit card on the line, consider the fees and the interest rate.
What’s a signature loan?
Signature loans are a loan granted in good faith and don’t require collateral. Collateral is any property or asset you promise to a lender in order to obtain a loan in the unlikely event that you default on your payments. Your personal information (including your income and credit history) is required along with your signature and a promise to repay the loan.
A signature loan is usually an installment loan. You will make monthly payments until the loan is paid off. The monthly payment amount for each installment is usually the same over the entire term of the loan.
The lender cannot seize your home or assets if you stop paying an unsecured loan. The only cost is in credit score and credit history damage. Negative information, such as nonpayment of a loan, can remain on your credit report for up to seven years. You can have bankruptcy on your credit reports for as long as 10 years. This could prevent you from being approved for future loans, and may lead to higher interest rates.
A signature loan can put your credit at risk, but you need to be serious about repaying the loan. You could face serious financial consequences if you fail to repay the loan on time.
What is a Signature Loan?
A signature loan can be very expensive depending on what interest rate you choose. You should not rush to apply for a signature loan without taking time to consider the monthly payments, your true need, and how you intend repaying the loan.
It is best to have an emergency fund or other savings available to cover unexpected expenses. This may not be possible for all. A Federal Reserve survey found that only 40% of Americans have sufficient savings to cover unexpected $400 expenses. A signature loan may be an option if you feel like that.
A signature loan could be used for debt consolidation. You could save money on interest if you consolidate high-interest credit cards with one installment loan at lower rates. Signature loans can also be used for medical bills, major home improvements, and wedding expenses.
How can I get a loan for my signature?
Unsecured loans can be obtained from many lenders including traditional banks, credit unions, and online lenders.
A word of caution: Avoid predatory payday lenders offering high-interest loans.
What should you look for in signature loans
The cost of any loan is the biggest problem. While borrowers with excellent credit may be eligible for lower rates and more favorable terms than those with poor credit, applicants with less-than perfect credit history may have a limited selection of loans available and may pay higher interest rates.
A signature loan could have an interest rate as high as 30% if you have poor credit. Before signing up for a loan, make sure you read all terms and fees. These are the most important points to remember.
- Interest Rate This is the principal cost of the loan. Your interest rate, the amount you borrow and the length of the loan all impact the total interest cost.
- Origination Fee — This fee is charged by some lenders to approve a loan.
- Prepayment penalty — Lenders may charge an additional fee if the loan is paid off before the due date. You can avoid this fee by refusing to take out loans that have them.
- Late payment fees — By paying on time, you can avoid late payment fees and their impact on your credit report. Most lenders will charge you a late payment fee if you pay late.
This is not an exhaustive list. To find out all the possible costs associated with your signature loan, consult your lender.
How to Apply for a Signature Loan
A signature loan application is generally easy and faster than other types of quick loans. However, approval may prove difficult depending on your credit score. You can easily apply online for a signature loan from many lenders in just minutes.
Make sure you have all your information ready before you start the application process. This includes your contact information and proof of income. The lender may require approval or funding within a few days to several weeks, depending on how long it takes.
A signature loan may be an option if you have urgent cash needs. However, you should consider your financial situation and the reasons you are short of funds.
If you live paycheck-to-paycheck, you should consider reviewing your budget and recurring monthly costs to make sure your money is going toward expenses you need or value most.
Although a signature loan might be right for you, it could be costly, especially if your credit score is not good. If you decide to apply for a signature loan, do your research and compare rates.