What is a Signature Loan?

What is a Signature Loan - hero image

If you’re in need of some fast cash, you may be considering a signature loan. As with any financial undertaking, it’s critical that you fully understand your options so you can make the best choice for your future. Today, we’re here to lay out the pros and cons, the twists and turns, and the you-gotta-know-this information when it comes to the signature loan. If you’re looking to sign on the dotted line, please—read on before you pick up the pen.


So, What is a Signature Loan?

In a nutshell, a signature loan is a type of unsecured personal loan you can get without having to put down any property or assets as collateral. You provide your personal information (including income and credit history) along with a signature and your promise to pay back the loan. It’s often an installment loan, meaning you’ll make regular monthly payments through the life of the loan until you’ve paid it off.

If you want a loan that doesn’t require putting up an asset like your home or your car as collateral, a signature loan might be a good choice for you. Just be aware of potentially high fees and interest rates attached to a signature loan based on your credit history, credit scores and income.


What Can You Do With a Signature Loan?

1. Consolidate Credit Cards

If you’re juggling more than one line of credit, you could get a personal loan to consolidate all the charges into one monthly payment. Even better—you could do it all at an interest rate considerable lower than your current APRs on your credit cards.

2. Refinance Student Loans

Refinancing student loans can provide some financial relief. You might be able to get a personal loan with a lower interest rate that allows you to pay off your student debt faster. However, remember that student loans come with tax advantages. Also, your refinanced student loans would not be eligible for any potential loan forgiveness programs in the future. Finally: if you use a personal loan to pay off all or a portion of a student loan, you will lose the ability to deduct your interest payments when you file your income taxes.

3. Finance a Purchase

Financing a purchase depends on whether it is a want or a need. If you’re going to take out a loan anyway, getting a personal loan and paying the seller in cash might be a better deal than financing through the seller. Don’t ever make a decision about financing on the spot, though. Ask the seller for an offer and compare it to what you could get through a personal loan. This should make it easier to make the best choice for you.

4. Pay for a Wedding

Any large event (like a wedding) qualifies, if you would end up putting all associated charges on your credit card without being able to pay them off within a month. A personal loan for a large expense like this might save you a considerable amount on interest charges, provided it has a lower rate than your credit card.

5. Improve Your Credit

Taking out and paying off a personal loan can boost your credit in several ways. Obviously, paying off the loan on time is great for your credit score. But wait, there are even more benefits! A personal loan may lower your credit utilization rate: the amount of total credit you’re using compared to your overall credit limit. Having a personal loan boosts the amount of total credit available to you. The less of your total credit you’re using, the better your score! Finally, if your credit report shows all or mostly credit card debt, a personal loan might help diversify your credit makeup. This is because having different types of loans is often favorable to your score, as opposed to having only one type of debt.


Are You a Good Candidate for a Signature Loan?

If you need cash quickly, a signature loan might be an option that can give that short-term solution. Before you take the plunge, consider your entire financial health and why you need cash to begin with. If you live paycheck-to-paycheck, review your budget and recurring monthly costs to make sure your money is going toward expenses you need or value most. It’s best to pay for any unexpected expenses from an emergency fund or other savings. According to a Federal Reserve survey though, just 40% of Americans have enough savings put away to cover an unexpected $400 expense. If that sounds like you, a signature loan could be a reasonable option.

A signature loan may be a fit for your needs, but it can be expensive—particularly if you have poor credit health. Do your research and shop around to find the best rates and fees if you do decide that a signature loan is right for you. Like any other loan, you shouldn’t rush and apply without putting serious consideration into the costs of a monthly payment, whether you truly need the funds and how you plan to repay the loan.


Some Things to Consider

The biggest downside to taking out a loan of any type is the cost. Borrowers with good credit may qualify for better rates and more favorable terms, while the choice of loans for applicants with less-than-perfect credit histories may be limited and come with higher interest rates. Review all loan terms, including fees, before signing up for a loan.

If you stop making payments on an unsecured loan, the lender can’t come after your home or other assets. Instead, the only major cost comes in the form of damage to your credit history and credit scores. Negative information like nonpayment of a loan can stay on your credit reports for seven years. Bankruptcies can stay on your reports for up to 10 years. This can keep you from getting approved for future loans and can lead to higher interest rates. While a signature loan puts your credit on the line, you should take that commitment to repay the loan very seriously. If you don’t, you could be dealing with the financial fallout for a long time.


Here’s the Bottom Line

Personal loans can be useful, given the right circumstances. It’s very important that you consult with a trustworthy financial institution and weigh your options. There’s a lot to consider, and Y-12 Federal Credit Union has knowledgable financial professionals ready to help you navigate the process. If you live in Knoxville or East Tennessee, check out the Signature Loans available from Y-12 Federal Credit Union. Y-12 FCU Signature Loans are great when you need extra cash but don’t have or want collateral for the loan.

Y-12 Federal Credit Union Signature Loans offer you a perfect solution for a variety of expenses: that special trip you want to take, new furniture or medical expenses, auto repairs and even debt consolidation. Your signature may be the only requirement to get the funds you need. You can enjoy fixed, affordable payments with flexible terms up to 48 months. Click here to learn more about Y-12 FCU Signature Loans!