At some point or another, we’ve all found ourselves strapped for cash and in need of something extra to get us going without filling out too much paperwork.
While you may think of using your car to secure your loan, also called a title loan, this can be risky. As the CFPB found in this study, one in five customers had their vehicle taken away by the loan company – not what you need when you’re in a financial bind!
That’s where signature loans come in handy.
Signature loans are personal loans that are offered by finance companies or banks that don’t require assets as security that you’ll pay back the loan.
They’re flexible and easy to obtain because all that is needed is the borrower’s signature, which acts as collateral for the loan.
Once you get a signature loan, you can use it for whatever purpose you choose. Interest rates with signature loans, however, are much higher than secured loans because of the lack of collateral. Learn everything you need to know about signature loans in this guide.
Types of Signature Loans
Signature loans come in different forms. Some examples are:
Short term loans that are linked to your payday. Your employment details are required for such a same day loan and payment terms are normally based on your payday. This, however, varies with different lending institutions.
Single Payment Loan
As the name suggests, single payment loans are quick loans the borrower is required to pay off the loan inclusive of the interest, in one payment.
This is a loan that is repaid over time with at least two payments made towards clearing the loan. Each of these payments is considered an installment which is where the term installment loans comes from.
While some loans can have interest rates or fees that change over time, this type of loan does not have a fluctuating interest. This helps the borrower to predict their future payments. You need to really watch out for “balloon payment” loans, where the interest rate is low to start, and then after a certain period of time the interest rate blows up like a balloon.
Variable Interest Loan
The interest rate in this type of loan is charged on the balance but is also subject to change as the market interest rates change. This can be good if you expect the interest rate to go lower in the future, and usually will get you a lower interest rate than a fixed-rate loan.
Advantages of Signature Loans
These are the pros of applying for a single payment loan:
It’s Fast and Convenient
If you’re in a fix and need cash almost immediately, a signature loan is the best bet for you. With bad credit loans keeping up with technology, you can easily apply for Signature loans online. As long as you have a good credit score, you’re likely to get the money in no time.
No Collateral Needed
Signature loans are unsecured meaning that your assets remain safe even after your loan has been approved. All you need is your signature as security. Secured loans may have lower interest rates, but they require the borrower to put in an asset as security.
Boosts Your Credit Score
As long as you pay back your loans on time, your credit score increases. Getting a single payment guaranteed approval loan and paying it back on time can help to improve your credit history. This is a useful tip if you’re in the process of building your credit.
Disadvantages of Signature Loans
Make sure that you are aware of these downsides when looking to apply for a signature loan:
Unsurprisingly, because there is no collateral, the personal loan no credit check lender requires a cushion seeing as they are taking a greater risk. It’s important to do your research and find payment terms and interest rates that are competitive. However, don’t expect the same rates as you would with a secured loan.
Not everyone can benefit from a signature loan. Most signature loans are served after credit checks. If it turns out that your credit score is bad, you may be slapped with a very high interest rate or not qualify for the loan at all.
You may even find out that your interest rates decrease drastically with a secured loan. So if your credit isn’t doing so well, consider a secured loan as you build your credit score.
Lower Loan Amount
This isn’t necessarily a disadvantage to many people looking for small personal loans. The fact that signature loans are unsecured means that the lender will not be willing to give you a huge amount of money. Different banks and financing institutions have different limits as to the amount of money that you can receive on loan.
If you’re looking to get a loan worth a lot of money, chances are that you may need to find another option to get a loan because the lender may not be willing to carry a heavy financial risk.
Do I Qualify for a Signature Loan?
If you are considering a signature loan and not really sure if you’re eligible. Here are a few things to consider:
Do you have a good credit rating? Remember that a signature loan doesn’t have collateral so the financial institution will do their due diligence to ensure that you will pay the loan.
Work on your credit score to qualify for signature loans or get better interest rates. You can do this by taking small manageable loans and repaying them well within the stipulated time.
Proof of Payment Capability
If you’re salaried, then your pay slip will be proof that you are capable of paying back the loan. Proof of income will boost your chances of getting a loan.
Before you take the loan, ensure that you have properly worked out your payment plan. Ensure that the payment plan is comfortable enough and won’t require you to take out another loan to pay the first loan.
This is mainly required by traditional lenders. Applicants need to have a cosigner especially if the applicant doesn’t meet the lender’s income requirements. In the event that you’re not able to make loan payments and default, your cosigner will bear the brunt and be held responsible.
It’s Easy to Get a Loan Unless You Need It
Signature loans can be really helpful especially in case of emergency. You may urgently require a large amount of cash and your savings may not be able to cater to your immediate needs.
For single payment loans, ensure that you pay off the loan as soon as your salary or expected cash checks into your account. The longer you take to service your loan, the less likely you are likely to pay. You’ll find that uses for the money will keep popping up and before you know it, you are a defaulter and earn yourself a bad credit score.
Visit our page today for more tips and information on how you can get your money right. Here are some other articles you might find helpful:
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