The major benefit of a Signature Loan is that the borrower does not have to put up any personal property as collateral for the loan (like a house or car).They are considered unsecured loans. All that is required is the borrower’s signature. People who do not own any assets or people who do not want to attach their assets to a loan find signature loans useful. Younger people, who may have just started working, may find these loans helpful in establishing a credit rating.
Most types of loans require some form of collateral to secure them, so these are not typical loans. Because the lender assumes a greater risk when making a signature loan, the fees and interest rates are going to be higher than on a collateralized loan. They will have higher monthly payments and are usually much shorter in duration. Some signature loans are due in as short as 12 months. Some go as long as five years. Make sure you have the ability to retire the loan with earnings or an alternative source of funds within a shorter period, than a secured loan.
Another Benefit of a Signature Loan
If you find that you can no longer make your payments on this type of loan, your home and car are safe from the creditor. The lender can take you to court, but they cannot take your personal assets for non-payment. If you can prove that you do not have the cash to make payments, there is little that the lender can do to collect the money.
Reasons for Using a Signature Loan
• Starting a Business: Most people starting a new business do not have all the cash they need in the very beginning. A signature loan would not jeopardize your personal assets, if the business fails.
• Short-term need: Paying for your kid’s college tuition, while waiting for a grant or student loan to come through. Once longer-term financing is received, the signature loan is paid off.
• Emergency needs: Immediate needs for unexpected car repairs, or unforeseen medical expenses.
• Investment Opportunity: If an opportunity comes along that, you do not want to miss, and you are short on cash, use a signature loan to fund the project for a short period of time.
Whenever the need for short-term cash arises, a signature loan is a good way to get the money needed, quickly. This will give you time to find an alternative source of financing later.