Signature loans have been growing in popularity for several years now. The reason they’re called signature loans is because you can get them simply by signing your name on the loan application. There are all types of signature loans, including five-year loans and credit cards.
1. Collateral Isn’t Necessary
The best part about an unsecured signature loan is that you don’t need to put up any type of collateral, like your car or home. If you end up having trouble paying back the loan on the schedule you setup, you won’t have your car repossessed or be forced to foreclose on your house. Since collateral isn’t required to back up a signature, loan, they’re sometimes also referred to as good faith loans.
2. Interest Rate is Based on Credit
Lenders give applicants a certain grade that’s based on the applicant’s credit rating. This will help determine how high of an interest rate will accompany the loan. Interest rates are a reflection of the likelihood that the borrower will default on the loan. An applicant with a low credit score will likely get a high interest rate. The reason for the high rate isn’t punishment, but instead to make sure that the lender will be able to profit from the loan, just as they do when lending to someone with good credit. For applicants with good credit, the interest rate could be between five and six percent; for applicants with bad credit, the interest rate could be 30 percent or higher. Whether you end up with a high or low interest rate, most signature loans come with a fixed interest rate, meaning it won’t change over time. With a regular loan, like a normal credit card, your interest rate could change if you’re late on your payment. However, with many signature loans, the interest rate you’re quoted in the beginning is the only rate you’ll pay over time.
3. Signature Loans are Easy to Apply For
When it comes to non-signature loans, you usually have to fill out a lot of paperwork, particularly to authorize the vendor the power to take your collateral if you fail to repay the loan. Also, collateralized loans usually require the applicant to fill out paperwork in person, like at a bank. At times, non-signature loans may offer a better interest rate than a signature loan, but they’re more complicated to apply for. Signature loans, on the other hand, can be applied for online from the comfort of your own home. While you may have a phone conversation with the lender to verify your identity, a majority of the process can be completed online.