Signature Loans- The Loans for Bad Credit Risks

Obtaining cash can be difficult when credit markets dry up. These days fewer and fewer lenders are willing to offer financing to individuals and small businesses. The borrowing power that people have is being diminished as many credit card companies have been decreased the limits that they are offering to their members. If you are in dire need of cash, one option that you may not be aware of is the signature loan.

Signature loans are not secured by any collateral. This means that the lender is taking a bigger risk. To offset this risk, the loan will be more expensive than a secured loan. And the worse the borrowers credit score, the more costly the loan will be. Today, most lenders are very selective in giving out loans. If you have bad credit it will be much more difficult for you to get a loan, and you can expect that your interest rate will be higher than if you had good credit.

If you are in need of financing, and are looking for a loan, here are key items that you need to know about before trying to obtain a signature loan.

First, as with any loan, the lending institution will look at your credit score, also known as your FICO score. This number is very important because it indicates how well you manage your debt and how likely you are to repay any outstanding loans. If you have a better credit score than you can expect to get a loan with much more favorable terms.

Since signature loans are unsecured, the lenders who make these types of loans are less likely to make them to a potential borrower unless they have a good understanding as to who the borrower is. Probably the best place to look for a signature loan is at the bank that you currently have an account with. Along with your FICO score information, these lenders will have a good understanding as to your cash flow situation and your ability to repay your debts.

Since there are no collateral securing signature loans, these loans are considered high-risk debt obligations. Loans that are deemed to be high-risk loans tend to be more expensive. These expenses are usually loan initiation fees and above average interest rates. The interest rates on signature loans can be exorbitant. Sometimes, the interest rate on these types of loans exceeds that which you would pay on your credit card.

It is important for you to look at all the costs when you are borrowing money. Do all the fees and interest rate add up to a number that is higher than if you ran a balance on your credit card? Can you get better rates elsewhere? Make sure to read all the fine print on any loan you are being offered. What are the penalties for late payment? Are there prepayment options? And remember that defaulting on this type of loan will significantly negatively impact your credit score.

If you are fortunate enough to be able to obtain a signature loan, the likelihood is that the repayment period for the loan will be very, very short. Sometimes, these loans are for people just trying to make ends meet until their next payday. As such, these loans may be for thirty or fewer days in duration. Typically, as with interest rate, the better ones FICO score, the longer the loan repayment period will be.

Your credit score is not the only thing that a lender will look at to determine if you are a reasonable risk. A lender will also try to determine if you will be able to repay the loan using a variety of metrics. Your debt ratio is also very important. If you owe less than one third of your household income then you are a better risk. Signature loans are a reasonable option if you need money and expect to be able to repay that money in a short period of time. It is important however, to make sure that you are dealing with a reputable lender. Take the time to check with the Better Business Bureau, State Attorney Generals Office and do a quick internet search. Using these sources you should be able to uncover any issues that might make you want to consider a different lender. And you should make sure to read over any loan documentation before signing.

If you are in need of financing, signature loans may be a reasonable option for you. However, as with anything, be careful about whom you deal with. Try to limit your dealings to well known, reputable lenders. When considering a lender, consult your local Better Business Bureau to see the lenders reputation.

Are you looking for a little extra cash?