Signature Loans? Is it Smart to Use One?

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Len Penzo
Signature Loans? Is it Smart to Use One?

There are always times in life when unforeseen circumstances arise and you need a helping hand -financially speaking. It might be for car repairs, for home improvements or simply a little extra cash to cover you at Christmas.

Either way, a signature loan might be one of the best personal loans for you; particularly if you don’t want to have to put up collateral like property or any other assets to secure the finance.

What is a Signature Loan? The Basics

A signature loan is regarded as a “good faith” or “character” loan. This is because they are supplied by high-street banks and alternative lenders, requiring only a borrower’s signature and a commitment to repaying by using collateral.

It’s even possible to get signature loans no credit check necessary, but most options will require your credit history and proof of income too.

What Can You Use a Signature Loan Company For?

In essence, when you apply for signature loans online you can use the funds to cover anything you desire. It could even help fund your next family vacation, or perhaps consolidate existing debts you may have.

The fixed rate of interest attributed to your signature loan will be determined by your credit rating and income.

Keep in mind that signature loan rates may be higher than other forms of personal finance, given that no assets or collateral need to be stumped up upon application.

Isn’t a Signature Loan Just a Personal Loan With a Different Name?

You might be wondering whether unsecured signature loans are the same kind of finance as personal loans, and you’d be correct.

Some lenders will refer to his kind of finance as a signature loan, while others will label it as an unsecured personal loan. Either way, you’ll need a respectable credit score to obtain the same signature loan rates as you would with a loan secured against assets or property.

When is the Right Time to Get a Signature Loan?

The harsh reality is that many Americans do not have sufficient personal savings to cover unexpected expenses. The Federal Reserve has found that just two-fifths of Americans have enough to pay for an unforeseen bill of $400.

That’s where a signature personal signature loan can be a sensible option, providing you have a feasible plan in place detailing how you plan to repay it. It’s also a useful alternative to debt consolidation loans for those with multiple high-interest credit cards.

You can use the signature loan to pay off the multiple debts and repay the signature loan with one monthly installment, which often comes at a lower rate of interest.

How Much Can You Borrow With a Signature Loan?

Ultimately, the amount you can borrow from a bank or lender will be influenced on a sliding scale by your monthly income and credit history.

You can secure signature loans online for three-figure sums as well as five-figure sums. However, they will be no bigger than this, as unsecured signature loans present more of a risk to lenders than those backed by collateral.

How to Apply For a Signature Loan

  • First and foremost, prepare your personal information for the lender. This includes monthly income, employer details, mortgage or rental costs, etc.
  • Ensure your credit score is at a good level – if not, work hard to improve it before you apply. It’s unlikely that your chosen signature loan company won’t    list the minimum credit rating they require.
  • Make your installment loan application and be sure to read the small print – some signature loan rates will be higher than others, while some lenders will include costly origination, and late payment and early payoff fees that could prove a turn-off.

Are Signature Loans for Bad Credit Possible?

While it’s possible to find a signature loan company that offers signature loans for bad credit borrowers, it’s much harder to secure these than if you have a good or excellent credit rating.

Getting a personal loan for bad credit will incur much higher rates of interest. In some cases, interest can be over 25% higher for those with bad credit compared to those with good credit.

Those with poor credit histories may also be asked to provide a cosigner, also known as a guarantor, to act as collateral for your signature loan. This will mean that your family member or friend will be liable for repaying the loan if you cannot do so.

When Are Unsecured Signature Loans a Good Option?

The bottom line for anyone considering applying for signature loans online or with their high-street bank is that this type of borrowing is ideal for short-term situations only. Simply put, if you have an excellent credit score and you have disposable monthly income after your bills are paid, signature loans can dig you out of a hole, fast.