What Is a Signature Loan? Pros & Cons
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What is a Signature Loan?
How Do Signature Loans Work?
Typical Signature Loan Requirements
Signature Loans vs. Personal Loans
Pros and Cons of Signature Loans
Pros of Signature Loans
No collateral means that when you take out a signature loan, your house or car are not in danger of being repossessed. Funds acquired through signature loans can be used for just about any purpose you imagine, giving them more flexibility than many secured loans. Although signature loans tend to be pricier than secured loans, they may be less costly than carrying a balance on a credit card, which tend to have high APRs.
Cons of Signature Loans
Because they don’t have any physical collateral attached, signature loans usually carry higher interest rates than secured loans do. Signature loans can be harder to qualify for than secured loans. Depending on what you’re using the signature loan for, you might not see a return on your investment in the form of appreciation the way you would with, say, a mortgage.
Uses for Signature Loans
Medical emergencies Car repairs Home repairs or renovations Debt consolidation Major purchases Vacations Wedding
When Should You Consider a Signature Loan?
Signature Loan Fees to Be Aware Of
Origination fee: Though not all signature loans charge this fee, some lenders collect this cost to process a new loan. The fee is typically a percentage of your loan amount, and thus can cut into the amount you end up receiving. Late payment fee: As you may have guessed, this fee could apply if you make a payment past the due date. This one is easy to avoid though if you stick to making your payments on-time (setting up autopay can help with this). Early payoff fee: Also called a prepayment penalty, some lenders may charge you this fee if you pay off your loan before the term is up.
Applying for a Signature Loan
1. Check Your Credit Score
2. Gather Your Information and Documentation
Name Contact information Social Security number Proof of income (tax returns, pay stubs or bank account statements) Employer contact information Proof of address (a recent utility bill, your lease or proof of home or renters insurance) Proof of identity (driver’s license or passport)
3. Shop Around and Compare Lenders
4. Submit a Formal Application
5. Receive Your Funding
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