A signature loan is a special type of personal loan that doesn't require collateral. These loans are typically only available to customers who have a good credit history so that the lender doesn't view them as a high risk of default. The following can help you determine whether this loan product is right for you.
How do signature loans differ from secured loans?
Other than the lack of collateral, the main thing to be aware of is that a signature loan may come with a higher interest rate due to the increased risk to the lender in the event of a default. This may not be a concern if you don't have collateral or don't want to risk the family home or car. As with any loan product, shop around different lenders to make sure that the rate you are offered is competitive.
What are the repayment terms for a signature loan?
A signature loan is typically a basic installment loan. You will make a set monthly payment until the loan is repaid. A portion of the payment will go towards interest and the rest will go toward the principal, thus lowering the amount of the loan. You will be provided the loan terms at the time of signing, which will detail the interest rate, the monthly payment amount, and the length of the loan.
Can the loan be repaid early?
Generally yes, but you need to verify this before signing on the loan. Most lenders allow you to pay off the principal balance early, thus giving you the opportunity to pay less interest. You can also usually make extra principal payments to lower the interest and shorten the loan term. Just be aware that some lenders may not provide interest discounts for an early payoff, so always understand the terms and conditions of the loan before signing.
What happens if one must default on the loan?
The best course of action is to avoid default. If you are at risk of missing payments, contact your lender immediately. Many lenders have programs available for borrowers that are facing financial difficulties. The lender may allow you to skip a payment and have it added to the end of the loan term, or they may be willing to reissue the loan with lower payments but a longer loan term. If you do default, your credit score will take a major hit and the loan will go into collections. You may also be subjected to bank liens on your assets or wage garnishment, depending on the laws in your state.
For more help, contact a signature loan service in your area.