If you are looking to borrow money, “signed loans” are a type of loan that you may be able to suggest. There are some attractive aspects to signature loans, but learn more about them before signing up as they also have significant drawbacks.
Signature loans: the basics
A key feature of any loan is whether it is secured. A mortgage, for example, is secured by the house it helps you buy. The house is the guarantee. If you default on the loan, the lender can claim the property.
Credit card debt, on the other hand, is unsecured. If you don’t pay what you owe, the lender may come after you or a collection agency on you, but they’re unlikely to take anything back. Signature loans are unsecured loans.
Signature loans have also been referred to as “character loans” or “good faith loans” because they involve a lender – usually a bank or credit union – lending money based on your character, relationship. with the lender and only with your signature. and promise to repay. They usually also have a fixed interest rate.
Signature loans: the good sides
When evaluating the pros and cons of signature loans, a big plus is that they can be quick and convenient. The interest rates charged by lenders will generally be higher than the rates for secured loans because the lender bears more risk; but they will still likely be lower than another unsecured option – the payday loan.
Another benefit for the borrower is that the loan is unsecured as it means that you are not putting any property at risk. Signature loans can be perfect for some people – if, for example, they want to consolidate a bunch of debt that carries high and variable interest rates, like credit card debt.
Signature loans: the drawbacks
Of course, there are also downsides. Not everyone is well served by signature loans. They involve credit checks, to begin with, which means if your credit rating isn’t very good, you won’t get an attractive interest rate – and the loan might not be offered to you at all.
Even a good rate due to a good credit rating is likely to be higher than the rates you could get with secured loans. So, if you are a homeowner, you might want to consider a home equity loan instead.
Signature loans tend to be for relatively short terms, sometimes for a month or a few months, and usually no longer than four or five years. If you have to borrow $ 50,000 or $ 100,000, you are probably out of luck too, as these are usually amounts between $ 3,000 and $ 35,000. (Again, this is because the loan is unsecured and the lender bears a lot of risk.)
Sometimes you will also need to have a co-signer for the loan. This reduces the risk of the lender because they can sue the co-signer if you don’t pay back the loan.
What to do
If you think a signature loan might be right for you, take a closer look. Collect quotes from your favorite lenders, but don’t go crazy. Keep in mind that every quote will likely require a credit check, which will be noted on your credit report, and may temporarily lower your credit score.
If you currently have a bad credit rating and can defer taking out the loan, you can choose to increase your score for about a year, for example by paying your bills on time and getting your debt-to-debt ratio over. to the total credit limit. down.
Finally, you can probably get a better interest rate by not letting the loan be too long – the longer it is, the riskier it is for the lender – and by not borrowing too little, as lenders often consider sums of money. smaller as less likely to be reimbursed. In addition, larger loans will generate more income for the lender.