Your guide to understanding signature loans
Signature loans are offered by almost all financial institutions and can be used for different purposes. Borrowers request for signature loans for home improvements, debt consolidation, and payment of bills among other uses. With signature loans, borrowers are required to issue an online signature before taking out the loan. The loans are unsecured meaning that the borrower is not required to issue any asset as collateral. For this reason, most lenders will need the borrower to have excellent credit score and proof of income for them to qualify for the loan. After filling out a loan request form, you will be matched with a lender who can work well with your financial situation. Many borrowers believe that signature loans work the same way as personal loans. But this is not the case.
Personal loans are unsecured loans that attract a relatively higher amount of fees and interest rates. Most lenders will require the borrower to pay off the loan on their next payday. If the money is not paid back, the loan will be rolled over, attracting extra interest and fees. But signature loans are completely different. Since no collateral is required, the interest rate can begin at 7% and borrowers have a reasonable repayment term of more than 60 months.
Most signature loan lenders will only need the borrower to give an e-signature for their loan to be approved. However, there are also lenders who will require additional documentation. Signature loan is also referred to as a good faith loan since they are mostly based on trust.
How much can you borrow with a signature loan?
With the growth in online lending, signature loans have become very attractive to borrowers. The loan features a faster approval process and minimal information is required. The maximum amount to borrow in signature loans depends on the lender, your monthly income and credit history. Most lenders offer signature loans ranging from $500 to $50,000. Borrowers with a good credit report qualify for higher loan amounts compared to those with an unattractive credit history.
Why a signature loan?
For borrowers who request for signature loans, most of them use the money for debt consolidation. By consolidating your debts, you will have a new loan that attracts lower interest rates compared to the initial loans. This will eventually save you money and relieve you of the stress that comes with dealing with multiple debts at a go. Borrowers also consider unsecured loans since they have a faster approval rate and less paperwork is required. The loans can also be an alternative for borrowers who do not have a high valued asset to issue as collateral. One advantage that comes with requesting for a signature loan is that they can be used for any purpose. Other reasons why borrowers take out a signature loan include:
- Emergency expenses
- Home improvements
- Major purchases
- Other monthly expenses
How much interest rate will you incur?
When filling out a loan request form, no asset will be required. This tends to put lenders in a high-risk situation, which forces them to impose a higher interest rate. The rate also varies depending on the borrower’s credit score and monthly income. The loan term ranges from a few months to up to 5 years depending on the lender. However, it is important to note that the longer the loan term, the more amount you will incur on interest. Many signature loans are short-term in nature.
What if you have a bad credit?
Lenders can also advance the money to borrowers with bad credit. However, the interest rates imposed on such lenders is higher compared to lenders with a good credit history. If you have a bad credit and do not qualify for a higher loan amount, a co-signer can help you request for the loan. Having a co-signer to help with the loan application means that they are committed to repay the loan if you default.
Before taking out a signature loan
With such an important decision as taking out a signature loan, it is prudent to compare the rates from different lenders. This is because lenders have varied interest rates and for you to get the best loan to meet your financial needs, you need to find a lender with the lowest rates and convenient loan terms.
Requirements for a signature loans
To qualify for a signature loan, the borrower must be
- Above the age of 18
- Have a valid government issued ID card
- Must have a valid bank account
- Have reliable source of income
Types of signature loans
Besides signature loans, unsecured personal loans are available in different types. These include;
- Convertible loans
- Installment loans
- Fixed rate loans
- Payday loans
- Online loans
- Unsecured loans
- Single payment loans
Even before applying for a signature loan, it is important to ensure that you can make payments on time.
Signature loans can help build your credit
If you are working on improving your credit score, a signature loan can also be the best option for you. This is because the loans are easy to obtain. Although you will initially experience a drop in your credit score (since taking out a new loan always makes a borrower less attractive), complying to the loan terms by making repayments on time can help boost your credit history. This is especially if you are taking out a signature loan for debt consolidation purposes.
Advantages of signature loans
Individuals who require a loan but do not have an asset to issue as collateral can at times find themselves in a difficult situation. This is where signature loans come in. Since no asset is required as guarantee o payment, you can easily have your loan approved. Borrowers with poor credit score can also apply for the loan. Compared to requesting for a loan in banks, signature loans have a faster approval process and minimum documentation is required. This comes in handy especially for borrowers who need the money to cater for urgent financial situations. Signature loans are also available online, which means that you can easily apply for the loan in the comfort of your own home.
Important considerations before taking out a personal loan
Since signature loans are short-term loans, borrowers incur higher monthly payments. This offers protection against risks. With no asset being required as security, the loans also attract a high-interest rate. Remember to only request for a signature loan if you can afford to repay the loan since failure to repay the loan on time will not only have a negative impact on your credit score, but you can also incur extra amount on interest and fees. Besides, you may risk not having your loans approved in future.
With signature loans, lenders will have your loan approved in as soon as one business day. The loans can especially be helpful for borrowers in need of emergency cash. To make the best decision, it is important to compare lenders and work with the one who offers affordable rates. If you are looking for the best way to get quick access to cash, filling out a signature loan request form can be the best solution for you.