Signature loans are unsecured personal loans, so-called because the only security the bank has for the funds is your signature indicating that you agree to the terms and commit to repaying the balance. There's no collateral the bank can seize if you fail to pay the money back, as there would be with a mortgage or auto loan. As a result, to get a signature loan you'll have to prove you have excellent credit and enough income coming in to make the payments when you apply. If your credit history is more checkered, you still may be able to find a lender, but the interest rate will be much higher.
Get your credit report and score from all three of the major credit bureaus -- Equifax, Experian and TransUnion -- before you apply. Check each report for any mistakes, and file disputes as necessary to get erroneous information removed, as well as any older derogatory entries that should no longer be appearing. Getting this taken care of before beginning the application avoids having your application for a signature loan derailed by negative credit information that shouldn't be there.
In addition to letting you know how difficult approval will be, examining each credit report also can help if you find one bureau's score is an outlier on the higher or lower end of the spectrum. It might help to note to a lender, for example, that your Equifax score is 663 because it hasn't yet corrected an error that's artificially dragging down your score, and your TransUnion and Experian scores are far higher.
Check interest rates and terms from a variety of lending sources before applying. Every application requires the potential lender to pull your credit history, which causes a slight dip in your credit score. If the information on lending criteria isn't available on the bank or credit union's website, call the customer service number or stop by a local branch to get details. That way you won't waste your time, and ding your credit score, applying for a loan you're unlikely to be approved for. The National Credit Union Administration compiles a list of average rates for a variety of financial products, including personal loans, that can give you a sense of what to expect from your local financial institution. In addition to the stated interest rate, note whether the lender requires a minimum or maximum loan amount, and any additional fees or prepayment penalties.
You may find an easier time getting a low-interest signature loan from a credit union, rather than a bank. Credit unions are non-profit and by charter are designed to serve the interests of its members. With the lack of emphasis on corporate profits, a credit union representative may be more willing and able to work with you to find a suitable financial product for your needs.
The Application Process
Lenders ask for information that demonstrates your history of handling credit in the past, as well as your income and other debt obligations. You'll give the lender permission to pull your credit report and have to provide employment and income documentation. This might include copies of your pay stubs, W-2 forms and tax returns. You'll also be asked whether you rent or own your home and what other monthly obligations you have, so the lender can quickly determine your debt-to-income ratio. Some lenders want a list of your previous residences dating back a certain amount of time, or request that you provide a reference. In addition, some lenders will ask what you intend to use the funds for. This might come into play for signature loans designed to consolidate debt by impacting how the lender would consider your debt-to-income ratio.
Signature Loans With Bad Credit
Interest rates can vary tremendously based on your credit score. For example, LendingTree data revealed that customers using that financial website to find signature loans received interest rates ranging from 3.99 percent to 41.7 percent when they were approved. If you have poor credit, you'll pay at the upper end of that range from a conventional lender.
Peer-to-peer lending sites, such as Prosper, may be a more viable option. These sites allow potential borrowers to create their own listing stating what the proceeds of the loan will go for and making the case for why they're good candidates to repay the loan. The host site assigns a grade or rating that illustrates its assessment of your risk, based on your credit score and internal metrics. If enough investors on the site agree that you're a good risk, you'll be funded accordingly. Rates vary based on the perceived risk; at Prosper as of this publication, your APR could range from a low of 5.99 percent to a high of 35.97 percent.