Don't Have Collateral? How Signature Loans Can Help
When you apply for a loan, you often need some kind of collateral so that if you default, the lender can recoup some of their losses. Cars, homes, and stocks/bonds are all common forms of collateral. But what if you don't have any significant assets yet for collateral? While you may not qualify yet for a secured loan, you can still qualify for an unsecured option called a signature loan.
What is a Signature Loan?
A signature loan is a kind of personal loan that doesn't need to be secured by collateral to work. If you qualify for a signature loan, then you will pay it off in a set period of time that you and your lender agree to—often these payments will be monthly installments.
Signature loans are a great option because they are less risky than payday loans. Payday loans often have very high interest rates, and you may be required to pay the loan in full on your next payday. This strict payment structure can leave you in the lurch until your next payday, possibly putting a strain on bills and other living expenses.
With signature loans, however, you can have more flexibility with payments and can pay the loan back over a longer period of time. Signature rates can also come with higher loan maximums and lower interest rates; although, if you have very bad credit, then you will probably have higher rates.
Who Can Qualify for a Signature Loan?
The good news is that most people can qualify for these loans with minimum legwork, especially if you have fair to good credit. Typically you just need to show your lender that you have a permanent address, that you have stable income, and that you can handle the debt load.
Can You Still Qualify If You Have Bad Credit?
You can qualify, but you may have to look around more to find a lender. While signature loans used to be more common for those with poor credit, lowered interest rates over the years have made them harder to get for some people. The first thing to do is to start working on improving your credit score.
If you want to still apply with a poor credit score, you usually have to show the lender that you don't have any outstanding loans. You can also improve your chance of acceptance if you apply for signature loan with a co-signer. This can be a friend or family member, but it should be someone who is financially responsible and someone you trust completely. If you end up default, you don't want your co-signer to be someone who can't pay back the loan!
If You Qualify, What Can You Use the Loan For?
Since a signature loan is a personal loan, it can be used for just about anything. You can use the money for serious predicaments, like medical bills, or you can use them for vacations or home improvements. If you have some high-interest credit card debt that is hanging over your head, a signature loan could help you pay that debt off—of course, this would mean that your signature loan's interest rate would have to be lower than this specific debt.
If you have more questions about signature loans, contact a financial expert in your area for more information and for help qualifying.