A personal loan, sometimes also referred to as a Signature Loan, is a loan that can be used for many purposes. A Signature Loan is an unsecured personal loan. It's not secured by the equity in your home (such as in a home equity loan) or by some other personal property or asset (such as a car loan). Depending on the bank or lending institution, these types of loans are commonly available for amounts ranging from $500 to $20,000.
Consumers typically use a Signature Loan for purposes such as:
- Debt Consolidation
- Major Purchases
- Vacations, Holidays
- Unexpected expenses
- Home Improvements
Generally, a personal signature loan is a fixed rate, fixed term loan offering the following:
- Terms from 2 to 5 years
- Interest rates will vary based on credit score and income
- Loan Amounts up to $20,000
Understand the Terms
These types of loans can vary widely depending on the lending institution. Generally speaking, most personal or signature loans are unsecured, meaning they do not have collateral attached. Because of that, these loans will be more difficult to obtain. Lenders will require that applicants satisfy their requirements for creditworthiness. The terms and conditions of each loan will vary, but they generally offer a fixed payment and interest rate that must be disclosed before the loan is closed.
It is very important for you to know and understand all the terms and conditions of the personal loan before signing the promissory note that legally obligates you to repay the debt. If you do not understand any of the terms or conditions, you should clarify what they mean with the lending institution to ensure you are clear on the repayment terms. All information about the loan should be disclosed in writing and loan documents should not contain any blank spaces.
Personal loans may be taken out individually or with a co-signer or co-borrower. If the primary borrower fails to make regular payments, the co-signer can then be held responsible for making payments. If the primary borrower and co-signer do not make regular payments, one or both of the borrowers could receive collection calls or letters. If collection efforts do not yield payments, lawsuits, credit damage, and garnishments could result. If you choose to co-sign a personal loan with someone, make certain they he/she be able to make all the regular monthly payments.
It is never a good idea to take out a loan for someone else in your name unless they are a very trustworthy source. If you do decide to co-sign a loan for someone, make sure you could feasibly afford to make the monthly payment in place of the borrower if necessary. Thus, if you cannot afford to make the borrower’s monthly payment, it might not be a wise decision to co-sign the loan. Finally, you should always keep a copy of the loan agreement and promissory note for your reference and records.
If you are looking for a personal loan, it might be a good idea to check with your local bank or credit union first. In addition to working with an institution that you already know and trust, your bank or credit union may offer you a better interest rate or lower fees. Nearly all banks offer some form of personal or signature loan and, as always, it is a good idea to shop around to find the best loan for your needs.
Keep in mind that anytime a lender pulls your credit as part of your application, that counts as an official inquiry on your credit report. Applying for credit frequently generally lowers your credit score as it may be a sign of financial instability or over-extension.