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WHAT ARE SIGNATURE LOANS?
Signature loan, also known as character or good faith loan is a multi-purpose personal loan offered by credit unions, banks and other financial organizations. With signature loans, the lender counts on the borrower’s signature as a collateral instead of an asset to secure the loan. Since there is no collateral involved, the interest rate might be higher as compared to other credit forms and the loan acquired can be used for any purpose the borrower chooses. Signature loans are also unsecured personal loans and often an installment loan. Signature loans allow you to make monthly refunds over the loan until its completely paid off. The lender can’t seize your home or asset if you stop making the monthly payments on the loan, but your credit score and credit history will be negatively affected. For seven years, a negative report including non-payments of a loan can stay in your credit records and bankruptcy on the other hand can stay for about ten years in your records, preventing you from receiving approval for loans in the future if you stop making payments or don’t pay on time. Bad records in your credit report puts the lender at risk when approving loans to you. For this reason, they increase the interest rates to such borrowers. To access the funds of signature loans, the borrower fills a form which gives them a swift access to the funds. The loan can be used to make necessary improvements in your home, pay-off interests on credit cards, pay bills, consolidate other debts or cover emergency or unforeseen expenses. The credit risk involved in signature loans is higher than a secured loan. Due to this, lenders put higher interest rates on their loans with shorter terms ranging from few months to about five years. For lenders to grant signature loans, they assess their relationship with the borrower, personality and ability to pay back the loan, not forgetting the credit score, level of income and debt loads on the borrower. They also grant the loans based on how strong the borrower’s credit score is. However, some lenders can grant you a signature loan even if you have a bad credit. Compared to payday loans, signature loans allow you to borrow a large amount of money with longer repayment period.
How Does A Signature Loan Work?
Generally, lenders look out for a good credit history and a stable income to refund the loan when you petition for a signature loan. Some lenders may request for a co-signatory to sign a promissory note just in case the borrower defaults on the payments. Due to technological advancement, online lending has become one common way to borrow money. It is only required of you to fill an application form and wait a few minutes for approval or validation.
Is There Any Difference Between A Signature Loan and An Unsecured Loan?
A signature loan is the same as an unsecured loan since there is no asset or collateral attached to the loan approval process. But it is difficult to get unsecured loans since they attract good credit scores.
Signature Loans Versus Other Types of Loans.
It takes about one-two weeks to get a personal loan from the bank. This is so because of the credit check the bank runs on the borrower to know if he/she meets the requirements for the loan while the funds of a signature loan are deposited in the bank account of the borrower within a few days. When you have a credit card, you are free to make purchases which might add more debt and keep you trapped in a cycle of debt but with signature loans, you have no option of adding more debt to current money you borrowed once you receive the loan. To take a new loan, you have to repay the previous loan debt and the loans can be lump sum. Signature loans makes you a discipline borrower in trying to pay-off other debts. There are no restrictions to the amount of money you can borrow.
It important to note that on signature loans may have higher interest rates than other forms of loans since it doesn’t involve a collateral.
Signature Loans Vs. Payday Loans
There has always been a debate on which of these two bad credit loans is best. You should always choose a signature loan over a payday loan even when you shop online since it offers you a better deal and flexible monthly repayments.
Have There Been Any Changes in Signature Loans Over the Years?
Financial analysts have reported that the rate at which borrowers take signature loans have increased over the years without a corresponding change in the structure and purpose of the signature loan. Back in the day people with poor credit were noted to take signature loans but due to the increase in loan maximums and a decrease in interest rates, borrowers with high level of income and good credits have also resulted to taking the loan.
Amount You Borrow with A Signature Loan
The funds a borrower can access depends on the lender or bank, your income and credit history and it ranges from $500 – $50,000.
Is It Safe to Consider A Signature Loan?
Several people use signature loans for debt consolidation purposes. This is because it can reduce the interest you pay on the overall debt that had higher interest rates. This helps you save some cash since you don’t have to pay a lot of interest over a period. The rate at which people request for unsecured loans has increased because of the fast approvals and less paper work involved.
Interest Rate on Signature Loans
Signature loans have higher and fixed interest rates since there is no asset used to secure the loan. Depending on your income and credit score, the interest rate may vary. Though most lenders prefer fixed terms and rate on the loan, the duration can range between few months to five years but most of these signature loans are short term loans.
Is It Possible to Get A Signature Loan with A Poor Credit?
Though difficult, you can get a signature loan with a bad credit but the interest on the loan will be higher than the usual. To make it easier to get a loan when you don’t meet the qualification, lenders request you provide a co-signatory to the loan for approval. The co-signer signs a statement indicating that they agree to take responsibility of paying the loan if you are unable to.
Types of Signature (Personal) Loans?
There exist many types signature loans that include
• Payday Loans
• Fixed-rate loans
• Secured personal loan
• Variable-rate loans
• Secured loans
• Installment loans
• Personal Loans
• Unsecured loans
• Online Loans
• Single-payment loans
• Convertible loans
The most important factor to consider when choosing the appropriate signature loan for you is your ability to repay the loan on time since it affects your creditworthiness and credit report
When to Take A Signature Loan?
It would’ve been best to make payments for unforeseen occurrences using money from your emergency fund or other savings but it is not possible for some people. A Federal Reserve survey stated that only 40% of the American population have sufficient funds saved for any unforeseen $400 expenditure. If you fall within this category of people, a signature loan will be a good one to turn to in time of need. It is best to take your time when applying for a signature loan, considering the amount you will be paying on monthly basis and whether you need the loan badly or not. If you really need the loan, what preparation do you have in place to repay the loan?
How to Apply for A Signature Loan
It is easy to apply for a signature loan but to be approved for the loan might be a great challenge. With the online application, you can get the loan in a few minutes and this depend on your score and credit history. To apply for the loan, you need your social Security number, proof of income and any personal information that will aid the application process. The approval and funding of the loan amount may either take a day or few weeks depending on the lender.
Requirements/Qualifications for A Signature Loan
Fair to Good Credit: if you have a bad credit history, an unsecured loan should not be your principal option since it might be difficult to get. You need to have a fair-good credit sore to get a signature loan, ensuring that you make your monthly repayments and on time. In the case where you have been professed bankruptcy, or defaulted a loan in the past, you will have to wait longer to be cleared before you can take a signature loan.
Existing Low Debts: lenders take into consideration your debt ratio when you apply for a new loan. Though it is good to make use of your credit, don’t over-leverage yourself. Rather, keep the balance on your credit cards less than 10%. It is normal to have other installment loans but be sure they are not a lot. A proper management of your credit score, debts and keeping a low debt increases your worthiness for signature loans.
Enough Income: your dept-to-income ratio is very important. You need a high income to to validate your debt load and prove that you have the funds for any loan. With a higher income level, a loan lender can extend your loan even if you have a poor credit score or you’re in debt. If you’ve been working in the same organization for about two years or more, and can provide a proof of an increasing income, your benefit will be more.
Permanent Address: to be able to attract lenders, you must have a permanent address and sign the documents. This serves as a guarantee in case you default the loan. In addition, some lenders require you to assure them that you won’t leave town until you are done reimbursing the loan. So, if your place of work is in the area or your kids attend school in area or you have other important duties to fulfil there, you can confirm it to your lender as an assurance that you are not transient. You have high chances of getting the signature loan without a collateral when you present all this information. Also, to qualify for a signature loan, you must
1. Be 18 years and above
2. Be a resident of U.S.A
3. Have a checking account and should be active
4. Have an active cellphone and email address
5. Have a prof of employment and the minimum recurring income required
6. Have an issued government ID, valid and a passport picture.
When you submit the requirements and meet the conditions, you will be allowed to fill the application form in the loan firm or online for processing. The lenders will get back to you as soon as they are done. Your cash will be ready in few hours’ time or next working day.
Advantages of Signature Loans
You can borrow a lump sum of money at a lower interest rate than a payday loan or a credit card. Though payday loans and credit cards offer nearly an immediate solution for emergencies, the maximum amount a borrower can have access to might not be enough to cover his/her needs. The fees charged on these loans are very high but with signature loans, the borrower can take moderately higher amounts at lower rates.
You are not required to present a collateral or any form of asset to get a signature loan. All you need is your signature to access the fund. If you are renting and now beginning to build your credit score, a signature loan will be a good choice for you.
Signature loans comes with flexible and affordable payment plan. The payments are spread into equal monthly installments, giving the borrower ample time to repay the loan. With the signature loan, your principal and interest are added up and divided in equal monthly payments for the loan duration. This makes it easier to pay back the loan and not affecting your finances and budget on the monthly basis.
You can easily qualify for a signature loan with less requirements. Though your credit history and score are significant, they are not major factors considered during the application. The process is very fast and in hours, you can get the funds you requested for.
What to Look Out for With Signature Loans
The main disadvantage in taking any loan type is the cost. When you have a good credit, it qualifies you for better interest rates and better terms, but those with bad credit histories will be exposed to limited loan choices to pick from at higher interest rates.
There are a lot of lenders out there. To get the best lender for your loan, you should look among various short-term loan venders operating today and choose the best that will suit your situation. You should take note that if you fail to repay the loan you take, it will attract consequences such as damaging your credit and might result in a legal action against you. In view of this, borrowers must review all the terms and conditions associated with the loan to be sure of all the requirements needed to complete the repayments on the loan. Being aware of this will make you alert and prevent any negativity in the future.
Disadvantages of Signature loans
If your credit rating is not too good, the chances that you will get a good interest rate might be low especially if you are a starter. Sometimes you might not even get the loan.
A good interest rate, as a result of a good credit score can be higher than the rate you might receive with a secured loan. So instead of getting a signature loan when you own a house, you can get a home equity loan.
The repayment terms of a signature loan are usually short (one or few months) and not more than four-five years. You can get a loan worth about $3,000 – $35,000 but if you need about $40,000 or $110,000 worth of cash, signature loans are not an option for you. This is solely because it is unsecured. When you fail to make repayments on the loan, the lender bears the total risk involved.
What to Do
If you are comfortable going in for a signature loan, you can consider getting few quotes from the lenders for comparisms. Note that each quote might require a check on your credit and consequently, noted on your credit report and this can cause a reduction in your credit score.
You can put a halt to taking loans and rebuild your credit score if your credit rating is poor. You can build the score when you reduce your total debt-to-credit limit ratio and also pay all bills on time.
Lastly you can shorten the loan repayment period to get a good rate. Also do not borrow little amounts since the lenders might feel you may not pay back. When you borrow larger amounts, the lender gets more profits on it.
It is highly impossible to get lines of credit and new loans if your credit report has been declared bankrupt and this can last for many years. It can thin out your chances of getting a new job. Even though it is possible to recover from bankruptcy, the process is not easy. It takes determination to achieve that. Below are some guidelines to help you rebuild your credit.
1. Make a monthly budget and cling to it: it is important to make monthly budgets to cover all your expenses, making sure you cut down cost on your expenditures. This will make you save some cash on for emergencies. Always keep track and follow your written monthly budget so you don’t spend unnecessarily. The extra cash you make on your budget each month can be used to pay off your debts and release you from bankruptcy.
2. Have an emergency fund that will cover about three months or more worth of your expenditures. In case of an unexpected occurrence such as insurance claim, ill health, and other expense, you can rely on the fund instead piling the bill on your credit card or taking a loan.
3. Pay all bills on time: the FICO score is a model used by most lenders and it includes about 35% of your payment history. It is therefore good to make your monthly repayments on time since it can improve your score. Making late payments on your loans can reduce your score. If you are looking forward to building your score, you must pay all your bills in the due time.
4. Get a Secured Credit Card: a secured credit card is specially made for people who want to rebuild their credit history. If you have a low credit score say 600 or below, you can get the card but make sure you make the necessary security deposits which is about $200. In case you flout on the repayments, the firm will retain your deposits. On the other hand, the firm will refund your security deposit if you always pay back on time but later close your account. The firm also reports your repayments to the credit bureaus to help rebuild your score. The amount of credit you use affects your credit so don’t use more than 30% of the credit allocated to you each month. When you use more than that, it indicates you’re probably living beyond your means.
5. Check your credit reports as well: your credit score doesn’t give you a full information of your credit report but only briefs you about your credit report. This is why you have to do a regular check on your reports to make sure they are authentic and have no errors. Legally, we are all entitled to have a free credit report by a bureau every year. This information can be delivered by AnnualCreditReport.com. You are only required to answer some questions to verify your identity and that will prove that you’re the right person. It is then that all your reports will be provided for you to review. You can go through them at once or spread them through the year. Lookout for inaccurate information and unrecognized accounts because people can steal your identity. If you encounter any problem, inform your loan firm and credit bureau as soon as possible for rectification. You can further place a fraud alert on the account to deter creditors from using your name to open new credit lines.
Signature loans are a cool deal if you urgently need cash. They serve as a short-term resolution to financial difficulty. It is very important you examine creditworthiness and if you can repay the loan on time before going ahead to take the loan. Also take some time off to examine the shortfalls on your funds and make the necessary amendments to improve your credit score. Review your budget and recurrent monthly costs just to ensure your cash is geared towards the needed and important expenses if you make a living on paycheck to paycheck. Signature loans can be expensive, especially when you have a poor credit. Do a proper enquiry and shop around to get the best deals on the fees and rates for your loan.
Disclaimer: All loans offered through this website are subject to credit and underwriting approval. AfterLoans.ca is a lead referral company, not a lender. AfterLoans only works with financial service providers that adhere to Canadian laws and regulations. Our lenders lend from $500-$5,000. Loans amortization is between 6-36 months. APRs range from 19.99% to 55%. The actual APR charged will depend on the lender’s assessment of your credit profile. For example, on a $1000 loan borrowed for 12 months at 29.9%, the monthly payment will be $97.24; with a total repayment, including interest, of $1166.88 There is also lender’s optional loan protection policy. In the event of a missed payment an insufficient funds fee of around 45$ may be charged (dependent on the lender). If you default on your loan payment plan the lender may terminate the plan and the remaining balance will become payable immediately. Our lenders employ fair debt collection practices, but will pursue the payment of Outstanding debts to the full extent that Canadian law allows.