Signature loans: all you need to know
If you are looking for a loan but do not want or cannot provide collateral, a signed loan may be an option. Signature loans – also known as good faith loans or character loans – are no credit check loans, which means you don’t need collateral to apply. But to qualify, you’ll likely need a good credit history, a stable job, and enough income to pay off the principal, plus interest.
If you are thinking about this option, consider using Credible. With Credible, you can compare personal loan rates from multiple lenders without affecting your credit score..
What is a signature loan?
Signature loans are different from secured loans, which require you to put up some type of collateral, such as your home or car, to qualify. With a secured loan, if you don’t make your payments, your lender can terminate the loan agreement and take your collateral. Like unsecured loans, signature loans are secured only by your signature on the loan agreement. No guarantee is necessary.
You can use a signature loan for almost anything like debt consolidation or to cover a medical emergency. Interest rates and terms vary from lender to lender. Once you qualify, your lender will pay off your loan in one lump sum. Loan limits also vary, but can range from a few hundred dollars to several thousand. But since they are not secured by collateral, loan amounts are often lower than secured loans.
What Are the Interest Rates for Signature Loans?
The interest rates on signed loans are the same as for personal loans and depend on your credit score, credit history and the ability to repay your loan. Signature loans are provided by banks, credit unions, and many other financial institutions, including online lenders. If you have good credit, you will likely qualify for much better rates than borrowers with poor credit.
Typically, the interest rates on signature loans range from around 5.5% to 24%, depending on your credit score, the loan amount and the term. To find out what rate you will be eligible for on your signature loan, visit Credible today and use their personal loan calculator.
What other fees should I watch out for?
In addition to paying a higher interest rate (sometimes up to 30%), signing loans usually come with a fee, but not always.
- Creation costs: Some lenders charge an origination fee to process your new loan. The original fees are shown as a percentage and taken from the total amount of your loan. So if you take out a loan of $ 5,000 with a 2% origination fee, the amount you will receive will be $ 4,900 due to the $ 100 origination fee.
- Penalty for early payment: Lenders may charge a prepayment penalty if you pay off your loan before the end of the term. Most lenders don’t charge prepayment fees, but it’s worth looking for them on your loan document.
- Late penalty fee: Many lenders charge late fees if you miss payments or make multiple late payments on your loan. Avoid making late payments as this will negatively impact your credit report.
Some lenders offer signature loans to borrowers with poor credit without a credit check. However, the interest rates are usually considerably higher and the loan amounts are often much lower. This is why it is worth shopping around for the best personal loan rates and visit Credible to speak with an experienced loan officer and get your personal loan questions answered.
Will Signature Loans Affect Your Credit Score?
When you apply for any type of loan, including a signed loan, your credit score will take a temporary hit because you incur additional debt. But if you make all of your payments on time according to the loan agreement, your credit score might actually improve over time. In fact, your payment history represents 35% of your FICO credit score.
How to get a signature loan
To get the best rates and terms on your signature loan, it’s worth shopping around and compare rates and lenders by visiting Credible. Most lenders have a fairly straightforward application process, much the same as when applying for a personal loan. You can apply at your local bank or credit union, or find a lender online and complete the application online.
You may want to consider prequalifying, as you could get your loan approved within minutes of applying. Although loan application requirements vary, you will likely need the following:
- Valid ID
- Social Security number
- Proof of income
- Contact information
- Citizenship status
Ready to explore all of your personal loan options? Visit Credible today to find the best rates and lenders without affecting your credit score.
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