Are Signature Loans a Good Idea?
As you may have guessed from the name, signature loans only require that you provide a signature on exchange for credit. Lenders require that you have a good credit history plus you must have had a steady income. You could also aim for fixed, regular monthly payments. Early repayment does not attract any penalties. Indeed, financial institutions encourage it since they also benefit. The more borrowers pay their loans early, the more money a lender will have to advance to other borrowers
Exchanging a signature with money
The idea of getting money on the strength of a name may sound a little off. Ordinarily, nearly every financial institution will ask you for some collateral while borrowing money. Your car, home, stocks held in a company or items of jewelry could act as security for a loan. However, you might weigh the collateral the lenders want against the amount sought and deem the whole arrangement risky. A bank you have a long working relationship with will gladly advance you the cash you need. All you must do is sign some papers. Since the lender has trusted that you will honor your promise to pay, it would be rightful to call this facility a good-faith-loan.
Flexibility – more cash, low interest
Unlike the payday variant, signature loans enable you to get more money. On the other hand, you can borrow for 12 months or longer. Another benefit is that borrowers enjoy lower interest rates than, say, payday loans and credit cards. Moreover, you will find signature loans affordable and manageable. With the repayments spread out over a specified term, you end up paying a little at a time until full refund. As a house property renter or someone who has embarked on a credit-building journey, you will find the facility viable. You get to keep your house or any other asset intact.
Requirements – not as stringent as for other loan types
Having negated the need for a credit check as well as presenting collateral, obtaining a signature loan should be easy. To start with, you must be 18 years old and over. Also, you must reside in the US and have a job that earns you a regular salary. Lenders will ask for proof of income whether from employment or business. Other than these are other nitty-gritty requirements such as possession of a government ID and a correct phone number. Having met these conditions, you may now proceed to fill an application form at your lender of choice.
Use your money as you deem fit
You might wonder whether the loan offered imposes restrictions on utilization. There is no need to be anxious since as soon as you have the money, you can use it for any purpose of your liking. Some of the expenses you can meet include:
- Going on vacation
- Offsetting medical bills
- Consolidating your debts
- Financing improvements to your home
- Wedding expenses
- A business line of credit
Some precaution needed here
However, owing to the risk the lender gets into, the facility attracts a higher interest rate as compared to other modes of borrowing. On the flip side, the costs are not as high as what payday and credit card loans attract. At the same time, if you do not pay the loan amount on time as agreed with the financial institution, your credit score will suffer.
How the lender apportions repayments
There are no specific guarantees on the principal amount you can borrow, time given to repay the loan, and interest applied. No two lenders are the same, and it is up to both parties to come up with a loan term and a payment schedule. Another critical thing to remember is that every time you pay, a portion of the payment goes towards offsetting the principal amount while the other reduces the interest owed. Also, most financial institutions require that pay off the current loan in full before seeking another facility.
A little planning needed
Signature loans require that you make some consideration beforehand. Assess why you need the money and the amount. Plan carefully and determine whether borrowing money is necessary. Consider other modes of lending such as from credit unions. Also, establish what impact, if any, the borrowed money will have. After the lapse of a grace period, the lender will expect to start receiving your payment. If you do not adjust your budget or plan beforehand, you may struggle with repayment.
No worries about credit score
The question of a good or bad credit report always arises whenever one aspires to secure a loan. Luckily, signature loans are not a preserve of borrowers with good credit scores only. Lenders are aware that at times, the financial sector ignores the plight of people with bad credit. Those struggling with bankruptcy may also suffer a similar fate. Whether you are dealing with credit or bankruptcy issues, signature loans can accommodate you. However, there are some conditions that you must meet. Discuss your financial state with a prospective lender, and you may qualify for a signature loan.