Signature Loans — Alternative to High Interest Credit Cards

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signature loan is a loan to which no collateral is needed and it simply requires your signature as a guarantee that you will repay the loan. Because this type of loan requires no collateral to back it up, it is referred to as an unsecured loan.

Signature loans can help you reach your goals and bring you the finer things in life. In fact, even if you have bad credit, you can still obtain a personal loan to get the things that you want. Signature loans can help you avoid exorbitant credit card fees, overdrawn checking accounts, and costly interest fees. They can even help you rebuild your credit. The credit scoring model gives favorable heavy weight to timely payments made on a signature loan.

Where Can You Get a Signature Loan?

The first place to shop for a signature loan is where you normally bank. If you have a relationship with your bank or credit union, you might find they have exceptional values as far as fees and interest rates. Absolutely do not consider a payday loan — the fees on these types of loans can range up to 450 APR. Signature loans allow consumers to spread the payments out over the course of several years.

How Do Signature Loans Work?

A personal installment loan or signature loan works just like an auto loan or mortgage. The borrower makes regular monthly payments, equal in value, to repay the loan. Just like a mortgage, with each additional payment, the principal balance of the loan decreases and the amount of interest due that year decreases as well. The amount of interest paid throughout the course of the year is defined in the APR or annual percentage rate.

Ask questions when applying for your loan. In some cases, the automatic payment might reduce the interest rate that you are charged on the balance of the loan. Paying the loan off early or making extra payments is always a good idea and can dramatically decrease the amount of interest overall.

Even if you have a good relationship with your bank or credit union, some restrictions might apply in order to obtain a signature loan such as you might need to have a good credit rating or a credit score above 450. Typically, a minimum amount must be borrowed up to a maximum cap on the borrowed amount.

After You Get the Loan

Most signature loans feature a coupon book for payments that will be mailed in while those that are set up for automatic withdrawal from a checking account do not. In most cases, loans of this type require a monthly payment that remains the same throughout the entire term of the loan. This still requires effort on your part to remember the payment and mail the check. For the ultimate lazy man’s way, online banking not only saves you the cost of a stamp, but you can have the money automatically drawn from your account.

In summary, personal signature loans beat credit cards, store financing, and payday loans as the means to get that new shiny toy you are desperate to have. You need to make sure, of course, that you can afford it, as the terms are anywhere from 3 to 5 years.

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