Signature Loans of March 2023

What is a Signature Loan?

A signature loan is a type of personal loans provided by banks, credit unions, or other financial institutions and can be used for any purpose. It only requires the borrower's signature and a promise to pay. There is no collateral. That's why the interest rate for this personal loan is higher.

Signature loans are also known as Good faith loans or Character Loans because the lender relies on the personal characteristics of a borrower.

It is an unsecured loan, and the borrowers can choose the purpose of it themselves, whether for the loans consolidation, emergency expenses, or house renovation.

The interest rates are generally fixed and are determined by the borrower's credit history and income. The loan terms range from several months to five years.

Signature Loan VS Personal Loan

Signature loans are by the nature of personal loans. The difference is that a signature loan is an unsecured loan, meaning the borrower only promises to pay but doesn't provide the collateral. Because of the higher risks for the lenders, the interest rates are higher, and a good credit score is required. Therefore, it is more difficult to get in comparison to the mortgage loans secured by the house as collateral, for example.

In contrast, a secured loan needs collateral, either a house or a vehicle. They are offered in a longer-term and can have lower interest rates. The amounts provided with secured personal loans could be higher, as they are assured by the collateral. If you fail to meet the payments, the house or car you provided as collateral will be repossessed.

Signature Loan VS Revolving Credit

Signature loans get the money transferred to a borrower's account quicker, and the account gets closed after the debt is paid off. For a new loan amount, a borrower should take a new signature loan.

Revolving credit, on the other hand, takes longer as the lender checks the borrower's credit history more thoroughly. In addition, after repaying the revolving credit, a borrower can keep the line open until needed.

Pros and Cons of a Signature Loan

Evaluate the advantages and disadvantages of signature loans to make sure they are suitable for you to borrow.

Pros:

• The funding process is fast. The lender can transfer the funds to your bank account within a few business days after your application is approved.

• You don't need collateral. Unlike secured loans, signature loans don't require anything but a borrower's signature and co-signer.

• If you have a good credit score, you are likely to get a low-interest rate.

Cons:

• The lender of your signature loan may issue a late payment fee, origination fee, and late payment fee. It adds up to the costs of the debt you need to repay.

• Signature loans are only good for short-term borrowing. A long-term signature loan will be expensive and can damage your funds.

• A bad credit score, on the contrary, will result in you paying more interest to the lender and can be up to 30%.

Major Types of Signature Loans

The lenders offer loans for specific purposes, but all unsecured personal loans are considered signature loans, as you borrow without providing collateral.

• Standard personal loans. Credit unions and banks offer unsecured personal loans with different interest rates. They are not necessarily called signature loans, but they are by nature.

• Peer-to-peer loans. They are provided by the individuals having extra money or investors. P2P loans are often can be applied for online and even using your smartphone.

• Debt consolidation. This purpose suggests that a borrower takes a new loan to cover the existing ones. It is a good option to save money if you take a new loan with an interest rate higher than the one for your current loan.

• Payday loans or check advance loans. They are short-term loans for borrowing small amounts. The lenders offer loans with high-interest rates and often have hidden provisions in the agreement. It is advised to avoid this type of unsecured loans.

• Installment loans. They have a fixed number of monthly payments. The amount of money the borrower pays back on scheduled payments depends on the amount of the loan, the interest rate, and the period of the loan. This term is mostly used by money stores and payday lenders.

Whatever unsecured personal loan you take, you need to read the agreement carefully and assess your ability to pay the loan back. If you fail to pay back the loan, it may result in additional fees or even a lawsuit.

How to Choose a Lender?

If you are considering getting an unsecured personal loan and have decided on a signature loan, you first need to check your credit score. This will determine the terms you will sign a loan agreement. As signature loans require a higher credit score, you need to be sure you have a good credit history. Inspect your credit report and make sure there are no mistakes.

Then you need to consider different lenders. Whether you want to apply in person or look for online lenders, do your research. Go to the websites of the lenders and check for their offers. You can find the minimum credit scores, percentage rates, and other requirements, as well as the loan amount you will likely get. If you use a loan calculator, you can even assess the monthly payments for your signature loan. Don't be gullible to the lender's statements. Look at the reviews and articles about them.

Some online lenders offer pre-qualification. It is a soft credit check, and it won't hurt your credit score. The soft credit check helps to evaluate the offers you can get for a particular loan better and choose the lender more wisely. If you are pre-approved for a personal loan, it still doesn't mean you will actually get the loan.

Ways to Get a Signature Loan

The standard credit score for a signature loan is 670, but it depends on the lender you apply for.

You can still get a signature loan with bad credit. Though it is not only difficult, you will get an even higher interest rate. It will cause you to pay more than the interest rates for signature loans for bad credit get 30% and higher.

There are alternatives for a signature loan if you have bad credit. You can apply for a home equity loan, which uses the house as collateral, a joint personal loan requiring a co-signer, or borrow from your own paychecks. Otherwise, you may improve your credit history and then apply on better terms.

You may need a co-signer to borrow the unsecured personal loans. Co-signer is a person close to you who will take the responsibility of paying off your debt if you fail to do so. It is not easy to find such a person willing to co-sign your agreement.

Signature loans are good for short-term borrowing. If you take this personal loan for longer, it will probably get expensive. Take it only if you have good or excellent credit.

A borrower can take multiple signature loans. Though, if you have several loans, you will be considered a riskier borrower. In addition, the lender can impose restrictions on the number of loans a borrower can take.

The loans can be taken from traditional banks, credit unions, or online lenders. Opt for a bank if you already have a relationship with one, so you can even get a discount on the interest rate. A credit union can offer lower interest rates than a bank, but you need to be a member of such a financial institution or apply for it.

How to Apply for a Signature Loan

Once you decide on suitable lenders, you can proceed to the application filling.

It is convenient to opt for an online lender, as you will fill out the application remotely. Yet, if you are applying in person, the procedure is the same.

You need to provide personal information such as your IDs, work information, W-2 forms to confirm your income, tax documents, and bank statements. This stage requires a hard credit check. Take the applications in a short time so that you won't lose many credit scores.

Once your application is verified and approved, you will get the loan agreement. Sign the document only if you agree to the loan terms. There will be statements on your interest rate, loan funds, prepayment penalties if the lender has them, and a late payment fee.

After you sign the signature loan agreement, you will get the funds in your bank account in a few business days.

When you get the loan funds, make sure to meet monthly payments or payments done in other periods. It is stated in your agreement. If you can afford that, better opt for the automatic payments.

How to Repay a Signature Loan

As you made sure you meet your payment schedule by making installment payments manually or automatically, keep

If you have other existing debts, and they are payday loans, distribute the funds according to the promise you made.

There are almost always origination fees added to each of your unsecured personal loan. They allow the lender to cover the administration and processing costs and make up a percent of the loan amount you borrow. The origination fee is usually from one to five percent and is a one-time payment.

In addition to the origination fee, the borrower needs to check for the late payment fees and avoid them at all costs. Mind that there could be early payment fees, too, so read your agreement as thoroughly as you can. If there are none, you better pay off your debt earlier.

Save up the available funds, and either make bigger installments or make them in shorter terms. You can save your bonuses and tax refunds or ask family members to help you with repayment. If you will meet the schedule of your unsecured personal loan payments on time or pay it off early, you can raise your credit scores. This way, you can get a loan on better terms next time.

A personal loan can be refinanced. In this case, you should apply for a new loan and use this money to pay for the existing debt. It is good to do so when your credit scores improve, and you can get a loan on better terms. Refinancing helps o extend the loan's period and reduce monthly payments.

The True Cost of a Signature Loan

The total cost of your signature loan comprises the interest you will pay to the lender through the loan period, the origination fee, and other fees if you fail to meet the agreement requirements.

You can calculate the interest rate of a particular lender according to the period you get the loan for. For instance, if you get a signature loan of $5,000 for 15 months and the interest rate is 10%, you will pay the lender $339.79. Add an origination fee of 3%, and the amount you owe is $489.79.