A signature loan gets its name from the fact that all you have to do is sign the loan papers to get the loan. There is no collateral, such as a house or car, required. The most common types of signature loans are personal loans and student loans. While there are some drawbacks to signature loans, there also are some key benefits. Here are five great reasons to get a signature loan.
No risk of losing collateral
One of the best reasons to get a signature loan is that you don’t put any collateral at risk. When you borrow money to buy a house or a car or even when you borrow from your retirement assets, the lender can take those assets away from you if you are unable to pay back the loan. With a personal loan, you aren’t putting any assets at risk. That doesn’t mean there is no risk to a signature loan. If you don’t pay the loan back, you could be sued and your credit score could be ruined.
Lower interest rate than other types of unsecured loans
Though interest rates on signature loans are higher than those you would bet on secured loans, they are lower than those on other types of unsecured credit. People with good credit can get signature loans with single-digit interest rates. Credit card advances typically carry rates about double those of signature loans and payday loans have even higher rates.
Compared with a mortgage or retirement account loan, personal loans have fairly quick approval processes. You usually can get approved in a day or two, whereas it can take weeks to get approved for a mortgage or home equity loan. You often can apply for signature loans online or over the phone
Set term and fixed monthly payment
Another reason to get a signature loan is that you have a set term and fixed monthly payments to pay off the loans. If you take a credit card cash advance, you have a minimum payment and never quite know when the debt will be paid. With a payday loan, you usually have to pay back the entire amount in a week or two.
Can use them for any purpose
There are no requirements on how you use the proceeds of a signature loan. You can pay for a vacation, consolidate debt or use it to pay for home improvements. Some other types of loans do have restrictions on how you can use the money.