Unlike other types of loans, signature loans do not require you to post collateral (which normally guarantees the loan and can be claimed by the lender in case of non-payment) to avail of the loan.
Instead, only the borrower’s signature (hence the name) and a promise to pay are required. With this ease of availing cash, it is no wonder that signature loans are becoming an increasingly popular option for Americans in Salt Lake City and the rest of the United States.
However, while a signature loan can get you fast and easy cash, there are still some important things to consider before availing of one. Here are a few questions that you should ask yourself before you consider availing of a signature loan:
1. Do I have a regular and stable income?
A signature loan is typically classified as an installment loan, meaning that you would have to make regular payments on the loan, plus interest, until you pay back the principal amount. Because of this, it is important that you have a regular source of money that will allow you to consistently make the monthly payments.
Make sure to also check the life of the loan, or how long you will be making the payments for. You must be sure that you will have a regular source of income up until this point.
Otherwise, it will be difficult if you are unable to pay in the middle. If your source of income is unstable or in danger, it is best to consider a different kind of loan.
2. Can I handle the interest rate?
With no collateral that can be claimed in case of a non-payment of the loan, a signature loan is perceived as riskier compared to other kinds of loans that require collateral. Because of this, the interest rate on a signature loan is also higher, most especially for those with lower credit scores.
Thus, a signature loan could end up amounting to something very costly for you. Before signing off on the loan, make sure you fully understand the interest rate, terms, and fees so that you know exactly how much and what you will be paying for.
Assess first whether or not you think the cost is worth it so that you will be able to commit fully to seeing the loan through if you do avail of it.
3. Is this loan for me?
Because of its lack of collateral, the signature loan is sometimes called the “good faith” loan, in that “good faith” is the only guarantee of payment. Beyond this, however, what is truly on the line when it comes to a signature loan is your credit record.
Even before applying for the loan, you must already be in good credit standing, as this will determine whether or not you will be approved, as well as the terms of the loan.
Not fulfilling the terms can significantly damage your credit standing, which will affect your ability to secure loans in the future.
If you plan to take out more loans in the future, you must be completely sure of your ability to pay back the loan in full before you avail of one.
A signature loan can be your best dream or your worst nightmare. That is why it is important to consider all the factors before making your decision to avail.
Make your loans work for you by doing the due diligence, and the payoff will be worth it.