At some point in life, you may need to borrow money and so you need to know your options. You may be wondering, what is a signature loan?
What Is a Signature Loan?
A signature loan is a type of personal loan that doesn’t require you to put down any form of collateral. Instead, you provide your personal information, including your credit history and income, along with your signature and your promise to pay back the loan. A signature loan is an installment loan, which means you will make a regular monthly payment until it’s paid off. The payment amount is typically the same for the life of the loan. If you stop making payments, then the lender can’t come after your home or other assets. Instead, there will be damage to your credit score and credit history. Negative information on your credit report can last for seven years and make it harder to get another loan in the future and if you do get one then it can lead to higher interest rates.
The Requirements for a Signature Loan
Since you don’t need any collateral for a signature loan, there are some other requirements.
Fair to Good Credit: An unsecured loan, such as a signature loan, may not be an option for those who don’t have the best credit history. Having at least fair credit is a requirement for those who want a signature loan. You also need to make sure that you haven’t had any late or missed payments on debts two years prior to seeking the loan. If you have previously defaulted on a loan, you will have to wait even longer.
Low Existing Debt: Your debt ratio plays a role when you want a new loan. You should have a low balance on your credit cards, and you will want to have a mix of different loan types on your report.
Sufficient Income: Your current debt plays a role, but your debt-to-income ratio is even more important. Your income needs to be high enough in order to justify the debt loan and show the lender you can afford another loan. Even if you already have a high income, your lender may not give you a signature loan if you have a low credit score or high debt.
Permanent Address: Your lender needs some reassurance that you won’t default. If you don’t have a permanent address, you won’t be considered an attractive borrower. Any information you can provide to show you won’t leave town can be helpful. If you have a permanent job, you can verify this with the lender.
Applying for a signature loan is easy but getting approved will depend on your credit. Many lenders have an online loan application where you can apply in just a few minutes. Before you start the application process, make sure you have your personal information available. Depending on the lender, approval can take anywhere from a day to a couple of weeks.