A signature loan, more commonly referred to as a personal loan, is a loan you can use for whatever purpose you want. It is not like a home loan, which you have to use to purchase or fix-up your home, or a car loan, which you have to use for the purchase of a vehicle. It is a loan that you can use for whatever you want. Before trying to obtain a personal loan, it is important to understand how this type of loan works.
Thing #1: Where to Get a Personal Loan
There are a few different businesses that provide personal loans. You can get a personal loan through a bank or credit union. You can also secure a personal loan through an online lender or even through a peer-to-peer lending system.
If you find a lender you are not familiar with, research the lender with either the Better Business Bureau or with the Consumer Financial Protection Bureau to make sure the lender has an upstanding record. Work with a lender who you trust.
Thing #2: Expect a Small Hit to Your Credit Score
When you apply for a personal loan, the lender is going to pull your credit. A personal loan credit score pull is considered a hard credit inquiry and will result in your credit score going down a few points. The impact on your credit score generally wears off quickly; the hard inquiry will stay on your credit report for two years, but it will only impact your score for a year.
Although your credit score will take a little bump when you apply for the loan, making regular loan payments will help increase your credit score. If you use the personal loan to pay off some credit card balances, you should also see a nice increase in your credit score over time.
Thing #3: Pay Attention to Fees & Interest Rates
When obtaining a signature loan, it is important to pay attention to the full cost of the loan. Some lenders will charge you a processing or origination fee for the loan; others will not. This fee is usually a small percentage of the overall loan amount. You can pay the origination fee up-front, or you can allow it to be added to your overall balance.
Pay attention to the interest rate as well. The interest rate will impact how much you have to pay back. Your interest rate will depend on how much you are borrowing, the length of your loan, and your personal credit score. A low credit score and long loan terms are two factors that can increase the interest rate for your signature loan.
A personal loan allows you to use the money as you like. A personal loan will give your credit score a small hit, but that should be offset by the benefits of paying a personal loan on-time. Always pay attention to the full cost of a personal loan, not just the amount you are borrowing, so you fully understand what you are paying back.
For more information, contact a signature loan service.