Signature loans, likewise known as personal loans or unsecured loans, are loans that don’t require any collateral. The lender will only need your signature to guarantee your debt. Below are essential things to know about signature loans.
Different Types and Qualification Requirements
Basically, any loan you take out without giving a collateral is a type of signature loan such as IOUs from family and friends as well as personal loans and even credit cards from banks. To illustrate, let’s say that you’re applying for a credit card and you’ve already been given the loan terms, which include the loan balance or credit limit and the interest rate, says a signature loans specialist in Salt Lake City. Every single time that you use your credit card for anything, you’re essentially agreeing to pay off your loan based on the terms of credit card issuer.
As for the qualification requirements, the main thing that lenders look for is your credit score or creditworthiness. This is crucial since the loan is essentially unsecured and the lender must be assured that you are capable of paying off your debts on time. Take note that late lenders might consider late or missed payments found on your credit report to be red flags that you’re not an ideal candidate for a signature loan. Aside from your creditworthiness, lenders will likewise look at your employment status and debt-to-income or DTI ratio.
Other Vital Things to Note
A signature loan’s interest rate is usually higher than an average loan and is more often than not even higher than mortgages interest rates. Likewise, interest rates on personal loans are typically higher than interest rates on credit cards. However, take note that your creditworthiness will have a significant impact on how low or high your interest rate will be.
In the event that you are deemed unqualified for a signature loan due to insufficient income or less than stellar credit, your lender might request that you get a cosigner with excellent credit who will sign a promissory note for guaranteeing your loan. In addition, note that even if a lender approves your signature loan despite your bad credit, you should consider having a cosigner to help you obtain a better interest rate.