5 Things to Know About Signature Loans

[Apr 28, 2009.]

 

Getting a signature loan won’t be cheap—especially for borrowers with bad credit.  With lenders still reluctant to lend money to people who don’t have the highest credit scores, many borrowers may find if difficult to even qualify for a signature loan. Here are five things to know about getting this type of unsecured personal loan.

—Borrowers who obtain signature loans are promising to pay back the money by signing the loan contract. Usually these unsecured personal loans, which are also called “character loans,” can be used for any purpose. In some cases, a lender may be more likely to approve a personal loan for someone who already has checking or savings accounts at their bank. Going into a bank branch and getting to know the people who work there may also help borrowers get approved.

—Interest rates on signature loans are usually very high because there is no collateral involved. In some cases interest for an unsecured personal loan can be higher than that for credit cards. That’s one of the reasons potential borrowers need to be very sure that a getting a signature loan is going to help, not hurt their financial situation.

—Lenders usually expect people applying for an unsecured personal loan to have a good credit history and stable income. People with FICO scores above 760 are most likely to qualify for the best interest rates on a personal loan. However, in some cases a borrower with not-so-great credit still may get approved if they find a co-signer.

—There is such a thing as a bad credit loan, but they are very tough to get because of the credit crunch. The repayment term also may be shorter than if the borrower had good credit. But any borrower with bad credit who does get approved for a signature loan needs to make their payments on time to help improve their credit history. Otherwise, they may end up in worse financial shape than before.

—Lenders will also look at a potential borrowers existing debt-to-income ratio to determine their risk for a personal loan. Generally, people who have a debt-to-income ratio of less than 35% will be looked at more favorably. USA Today has a calculator that can help borrowers figure out their debt-to-income ratio.

Potential borrowers can begin their search for a personal loan here. It’s important to choose a reputable lender that spells out all the terms of any loan offers. Borrowers should also be cautious of unsolicited loan offers they receive via email because they could be a scam.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.