Most Americans only have about $400 saved away in case of emergency. That means if a slightly more expensive cost pops up, most people won’t have enough money to cover it.
So what are you supposed to do if you’re in this situation and need money fast?
Signature loans might be a way out for you. But before you start applying, you should understand what you’re signing up for with one of these loans.
Here’s what you need to know.
What Are Signature Loans?
Signature loans are also known as “good faith loans” because they don’t require any type of collateral. Just like what is called an unsecured loan, you won’t have to tie up any of your assets to get a signature loan. Instead of using an asset, such as your home or car, to get this loan, all you have to give the lender is your signature.
In other words, your signature is considered as a promise from you to pay back the money you’ve borrowed on time and in full.
Since you don’t have to provide any collateral, a signature loan might seem like a tempting option. However, there are a few things you should consider before you take out one of these loans.
Interest rates on signature loans are often higher than other loans. You’ll also need a good credit history (a lender might not grant you a loan if you don’t have this) and proof of income to show you can pay it back again. If you don’t have a good credit score, you may be able to get a signature loan with a co-signer instead.
You’ll pay back the loan in installments, and these installments will be the same amount each month until you make the last payment.
What Happens If You Stop Paying?
The lender can’t come after you if you decide to stop paying your monthly installments. That means you won’t lose your home or another important asset.
But there are still major consequences if you fail to pay back the loan.
Your credit history will record these missed payments, and it can make your credit score go way down. Even a single missed payment can stay on your record for at least seven years, so if you fail to pay back a signature loan, you might have trouble getting other loans or making large purchases, like buying a home, in the future.
You should never get a signature loan unless you know you’ll be able to pay it back on time.
Times You Should Consider a Signature Loan
Since you don’t need to provide any collateral to get a signature loan, they can come in handy in a number of circumstances. If you have an unexpected expense come up and need money right away to cover it, you should look into getting one of these loans.
Other times when signature loans make sense include:
- Emergency expenses
- Debt consolidation
- Unexpected bills
- Travel costs
Of course, you should always avoid taking out a loan of any kind if you can. However, when you need money fast, signature loans are a good choice.
How to Apply for a Signature Loan
Before you apply for a signature loan, make sure you research the lender and find the lowest interest rate you can. Signature loans can be more expensive than you think if you aren’t prepared.
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Oh – and if you are reading this because you live in Canada and you’re shopping for a loan we recommend smarter.loans. They’re basically a loan marketplace that has all sorts of loan options. They have loans for good credit card, bad credit, car loans, bad credit car loans, etc. etc. Definitely worth a visit if you’re north of the border looking for money.
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