Signature loans are a financial product that allows consumers to sign their loan agreements without having to provide collateral. This means that they are unsecured loans. Some financial products require collateral to protect the lender if an individual defaults on the loan. In most cases, signature loans will require a hard or soft credit check. Hard credit checks show up on credit reports even if an individual does not get approved for the loan. A soft credit check gives lenders insight into whether an individual is a high risk for this type of product. The check will not affect an individual's credit score nor show up on their reports. The following points highlight things to keep in mind when considering a signature loan.
Intended Use
The lender may inquire about why an individual needs the loan. Debt consolidation or even taking a vacation are not things that would cause an application to get denied. Loan officers will likely aim to get individuals approved for the highest amount possible. Knowing the intended use is helpful when securing a loan. Individuals might not get the amount that they request. Sometimes a higher amount might be offered.
Term
The term of a signature loan refers to how long an individual will have to pay the money and interest back. This can vary because these loans may be for a few hundred dollars or thousands of dollars. It would be senseless to set up terms in the agreement to pay a few hundred dollars back over the course of a few years, especially considering interest rates.
Origination Fees
Some signature loan lenders charge origination fees. These fees can be best described as administrative fees to set the account up. Sometimes this fee is deducted from the check or deposit an individual receives for their loan. For example, if the origination fees are $50 on a $1,000 loan, the check or deposit would be $950.
Late Payment Fees
These are assessed when individuals do not make their payments by their due date. Signature loan lenders usually report to credit bureaus late and on-time payments. This makes them a great tool for building credit. However, late payments are derogatory marks that can lower credit scores. Some companies offer a grace period, which is extra time to pay before late fees are assessed
Pre-payment Fees
Sometimes individuals apply for signature loans for emergency situations. When their financial situations improve, they may want to pay off their loan early. Some companies charge a fee for prepayment. It is important to ask questions about the loan agreement to understand the term, interest rate, penalties for late payments and pre-payments, and credit bureau reporting. Some companies report to one credit bureau, and others may report to all three of the main credit reporting agencies.
Share8 August 2022
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