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What Is A Signature Loan? – Forbes Advisor

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Editorial Note: Forbes may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations.

If you need to borrow money, you might be weighing whether a signature loan is worth it. Signature loans are also known as unsecured personal loans, which means that while you’re not at risk of losing any collateral if you don’t pay (at least not immediately), you also need to qualify based primarily on your credit score and financial profile.

A signature loan might be a good option if your credit is good, you want a quick and easy application process and you don’t want to (or can’t) put up collateral. Here’s what else you should know before you hit the “apply” button on a signature loan.

How Signature Loans Work

Loans generally come in two types: secured and unsecured. Secured loans get their name because they’re “secured” by some sort of collateral—i.e., something of value that you pledge, like a car or a savings account, that the lender can repossess if you don’t pay.

Unsecured loans don’t have any collateral per se. They’re “secured” by nothing other than your signature on the loan agreement, hence their alternate name, signature loans.

After you sign your name on the dotted line, your lender will give you the entire lump sum in a single payment, either by a deposit into your account or by writing you a check. Signature loans limits can vary drastically, from several hundred to several thousand dollars.

You’ll then make steady, even payments each month until the loan is paid off. Signature loans generally last from one to seven years, although three- or five-year term lengths are most common.

Signature Loan Costs

Signature personal loans come with a few costs, some of which you may pay upfront, while others are included in your monthly loan payments.

Interest Rate

For most loans, the biggest cost is interest. Your total loan cost is reflected in your annual percentage rate (APR). When you send the money in each month, it’ll be split up into a “principal” portion that goes toward paying down the loan balance, and an “interest” portion that goes to the lender.

The smaller your interest rate, the less you’ll pay to the lender with each payment. More money will also go toward paying down the loan, so this is why it’s so important to focus on the signature loan interest rate.

Origination Fees

Another big cost is an origination fee. Not all signature loans charge them, but if your credit is poor or you’re taking out a very large amount of money, it’s more common. This fee is taken out of your loan proceeds as a percentage.

For example, if you apply for a $10,000 loan with a 3% origination fee, you’ll only actually get $9,700 from the lender because the origination fee is $300. This is important to take into account when calculating how much you need to borrow.

Other Miscellaneous Fees

Most lenders will charge a late fee if you make a payment past the due date. They may also have certain other fees, such as for rolling your current loan into a new loan if you can’t afford it.

You may also see “prepayment penalties” mentioned to pay your loan off early on other sites. However, prepayment penalties are usually rare or nonexistent with reputable lenders.

Is a Signature Loan Right For Me?

Signature loans are good for when you want a simple, quick loan to apply for without too much hassle. Since lenders don’t require collateral, it’s often just a matter of checking your credit and your financial details to make a decision. Many signature loan lenders even offer same-day approvals, and possibly even same-day funding if you apply early enough in the day. You pay for this with a higher cost, however.

Even if your credit score is good, you often can still get a lower interest rate by applying for a secured loan instead with collateral, if you have it. If your credit score is good, though, the cost of a signature loan might not be that much higher than with a secured loan.

Signature loans are also a good choice when you want a steady, predictable payment in your budget. You know exactly when a signature loan will be paid off, because it’s in the loan agreement. Unlike a credit card or a line of credit, there’s no temptation to keep racking up a balance over time because you get all of the money upfront.

Where to Find Signature Loans

You can find signature loans, or unsecured personal loans, from:

  • Online lenders. It’s usually a quick process to shop around and apply for online signature loans. These businesses are often heavily automated, with no need to go into a physical location.
  • Banks and credit unions. Depending on the policies, you may also be able to apply for a signature loan entirely online or you may have to go into a branch. Credit unions often have cheaper rates than banks, although you’ll need to meet certain requirements to qualify for membership before you can apply for an account.
  • Payday lenders. Since payday loans aren’t backed by collateral, they technically qualify as a signature loan. However, we don’t recommend them because they’re extremely expensive, they don’t help you build your credit and they often employ shady business practices.

5 Steps to Get a Signature Loan

Signature loans are actually one of the easiest types of loans to apply for. Here are the steps you should take.

  1. Shop around: Check your rates with as many lenders as possible. The more lenders you check with, the better your chances of finding the best loan. Make sure each lender only does a soft credit pull first so that your credit isn’t affected.
  2. Choose a lender: Based on your rate shopping, pick the best lender. You’ll typically be able to complete your application online, but some lenders require you to call.
  3. Provide documents: Most lenders will require extra documents from you, such as your past tax returns, pay stubs, bank account statements and copies of your driver’s license. You can speed up your loan application by providing these as quickly as possible.
  4. Sign the signature loan agreement: If you’re approved, it’s time to put the “signature” on “signature loan.” Make sure you read the agreement carefully so you know exactly what you’re signing up for.
  5. Sign up for auto pay: You’re more likely to miss a payment if you have to do it manually each month. You can remove that worry from your list entirely if you sign up for auto pay.

Are There Signature Loans for Bad Credit?

Yes. It’s possible to get signature loans for bad credit, but one of two scenarios might happen:

You’ll Pay a Much Higher Interest Rate

Signature loans already tend to be more expensive than their secured loan counterparts. That’s especially true if you have bad credit. If you qualify for a signature loan for bad credit, the rates you’ll pay are similar to or even higher than those of credit cards, in the double-digit range.

You May Need a Co-signer

Some lenders allow for co-signers, which are people who agree to have backup responsibility to make payments if you don’t. If you have a friend or family member who trusts you and who has good credit themselves, you can consider asking them to co-sign on the loan for you in order to be approved.

It’s especially important to make sure you pay on time in this case because if you don’t, not only will your cosigner be on the hook for the money, they’ll also receive a hit to their credit score. The last thing you want in addition to a bad financial and credit mark is a broken relationship. But if you pay on time, a co-signed signature loan can be a good way to boost your credit score and get the money you need.

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Bad Credit

If You Want Consumers to Lose, Network Regulation is a Must – Digital Transactions

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After the current U.S. Congress was sworn in, a predictable chorus of merchants, lobbyists, and lawmakers demanded new interchange price caps and other government mandates to decrease credit card interchange fees for merchants. The tired attacks on credit cards are an easy narrative that focuses almost exclusively on the cost side of the ledger, while completely ignoring the cards’ important role in the economy and the regressive effects of interchange regulation. 

To lawmakers blindly acting on behalf of retailers, regulation is a brilliant idea—regardless of how it affects their constituents. For decades, they have promised these interventions would eventually benefit consumers. But the lessons from the Durbin Amendment in the United States and price cap regulation in Australia is clear. Although some policymakers bemoan the current economic model, arbitrarily “cutting” rates for the sake of cuts completely ignores the economic reality that as billions of dollars move to merchants, billions are lost by consumers. 

For the uninitiated, let’s break down what credit interchange funds: 1) the cost of fraud; 2) more than $40 billion in consumers rewards; 3) the cost of nonpayment by consumers, which is typically 4% of revolving credit; 4) more than $300 billion in credit floats to U.S. consumers; and 5) drastically higher “ticket lift” for merchants. 

Johnson: “To lawmakers blindly acting on behalf of retailers, regulation is a brilliant idea—regardless of how it affects their constituents.”

These are just some of the benefits. If costs were all that mattered, American Express wouldn’t exist. Until recently, it was by far the most expensive U.S. network. Yet, merchants still took AmEx because they knew the average AmEx “swipe” was around $140, far more than Visa and Mastercard. 

Put simply, for a few basis points, interchange functions as a small insurance policy to safeguard retailers from the threat of fraud and nonpayment by consumers. Consider the amount of ink spilled on interchange when no one mentions that the chargeoff rate for issuing banks on bad credit card debt exceeds credit interchange.

Looking abroad, interchange opponents cite Australia, which halved interchange fees nearly 20 years ago, as a glowing example of how to regulate credit cards. In truth, Australia’s regulations have harmed consumers, reduced their options, and forced Australians to pay more for less appealing credit card products. 

First, the cost of a basic credit card is $60 USD in many Australian banks. How many millions of Americans would lose access to credit if the annual cost went from $0 to $60? Can you imagine the consumer outrage? 

In a two-sided market like credit cards, any regulated shift to one side acts a massive tax on the other. For Australians, the new tax fell on cardholders. There, annual fees for standard cards rose by nearly 25%, according to an analysis by global consulting firm CRA International. Fees for rewards cards skyrocketed by as much as 77%.

Many no-fee credit cards were no longer financially viable. As a result, they were pulled from the market, leaving lower income Australians, as well as young people working to establish credit, with few viable options in the credit card market.

Even the benefits that lead many people to sign up for credit cards in the first place have been substantially diluted in Australia because of the reduction of interchange fees. In fact, the value of rewards points fell by approximately 23% after the country cut interchange fees.

Efforts to add interchange price caps would have a similar effect here in the U.S. A 50% cut would amount to a $40 billion to $50 billion wealth transfer from consumers and issuers to merchants. For the 20 million or so financially marginalized Americans, what will their access to credit be when issuers find a $50 billion hole in their balance sheets? 

The average American generates $167 per year in rewards, according to the Consumer Financial Protection Bureau. Perks like airline miles, hotel points, and cashback rewards would be decimated and would likely be just the province of the rich after regulation. Many middle-class consumers could say goodbye to family vacations booked at almost no cost thanks to credit card rewards.

As the travel industry and retailers fight to bounce back from the impact of the pandemic, slashing consumer rewards and reducing the attractiveness of already-fragile businesses is the last thing lawmakers and regulators in Washington should undertake.

Proposals to follow Australia’s misguided lead in capping interchange may allow retailers to snatch a few extra basis points, but the consequences would be disastrous for consumers. Cards would simply be less valuable and more expensive for Americans, and millions of consumers would lose access to credit. University of Pennsylvania Professor Natasha Sarin estimates debit price caps alone cost consumers $3 billion. How much more would consumers have to pay under Durbin 2.0?

Members of Congress and other leaders should learn from Australia and Durbin 1.0 to avoid making the same mistake twice.

—Drew Johnson is a senior fellow at the National Center for Public Policy Research, Washington, D.C.

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Increase Your Credit Score With Michael Carrington

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More than ever before, your debt and credit records can negatively impact you or your family’s life if left unmanaged. Sadly, many Americans feel entirely helpless about their credit score’s present state and the steps they need to take to fix a less-than-perfect score. This is where Michael Carrington, founder of Tier 1 Credit Specialist, comes in. Michael is determined to offer thousands of Americans an educated, informed approach towards credit restoration.

Michael understands the plight that having a bad credit score can bring into your life. His first financial industry job was working as a home mortgage loan analyst for one of the nation’s largest lenders. Early on, he had to work a grueling schedule which included several jobs seven days a week while putting in almost 12-hour days to make $5,000 monthly to get by barely.

“I was tired of living a mediocre life and was determined to increase the value that I can offer others through my knowledge of the finance industry – I started reading all of the necessary books, networking with industry professionals, and investing in mentorship,” shares Michael Carrington. “I got my break when I was able to grow a seven-figure credit repair and funding organization that is flexible enough to address the financial needs of thousands of Americans.”

With his vast experience in the business world, establishing himself as a well-respected business leader, Michael Carrington felt he had the power to help millions of Americas in restoring their credit. Michael learned the FICO system, stayed up to date on the Fair Credit Reporting Act (FCRA), found ways to improve his credit score, and started showing others.

The Tier 1 Credit Specialist uses a tested and proven approach to educate their clients on everything credit scores. Michael is leveraging his experience as a home mortgage professional, marketing executive, and global business coach to inform his clients. He and his team take their time to carefully go through their client’s credit records as they try to find the root of their problem and find suitable financial solutions.

The company is changing lives all over America as it helps families and individuals to repair their credit scores, gain access to lower interest rates on loans and get better jobs. What Tier 1 Credit Specialists is offering many Americans is a chance at financial freedom.

Michael Carrington has repaired over $8 million in debt write-ups and has helped fund American’s with over $4 million through thousands of fixed reports. “I credit our success to being people-focused,” he often says. “The amount of success that we create is going to be in direct proportion to the amount of value that we provide people – not just our customers – people.”

Because of its ‘people-focused goals, the Tier 1 Credit Specialist is determined to help millions of Americans achieve financial literacy. It is currently receiving raving reviews from clients who are completely happy with the credit repair solutions that the company has provided them.

Today, Michael Carrington is continuing with a new initiative to serve more Americans who suffer from bad credit due to little or no access to affordable resources for repair.

The Tier 1 Credit Socialist brand is changing the outlook of many families across America. To do this, the company has created an affiliate system that will provide more people with ways of earning during these tough economic times.

As a well-respected international business leader and entrepreneur with numerous achievements to his name Michael Carrington aims to help millions of Americans achieve the financial freedom, he is experiencing today. Tier 1 Credit Socialist is one of the most effective credit repair brands on the market right now, and they have no plans for slowing down in 2021!

Learn more about Michael Carrington by visiting his Instagram account or checking out the Tier 1 Credit Specialist website.

Published April 17th, 2021



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Does Having a Bank Account With an Issuer Make Credit Card Approval Easier?

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Better the risk you know than the one you don’t.

When it comes to personal finance, nothing is guaranteed. That goes double for credit. That’s why, no matter how perfect your credit or how many times you’ve applied for a new credit card, there’s always that moment of doubt while you wait for a decision.

Issuing banks look at a wide range of factors when making a decision — and your credit score is only one of them. They look at your entire credit history, and consider things like your income and even your history with the bank itself.

For example, if you defaulted on a credit card with a given bank 15 years ago, that mistake is likely long gone from your credit reports. To you and the three major credit bureaus, it is ancient history. But banks are like elephants — they never forget. And that mistake could be enough to stop your approval.

But does it go the other way, too? Does having a bank account that’s in good standing with an issuer make you more likely to get approved? While there’s no clear-cut answer, there are a few cases when it could help.

A good relationship may weigh in your favor

Credit card issuers rarely come right out and say much about their approval processes, so we often have to rely on anecdotal evidence to get an idea of what works. That said, you can find a number of stories of folks who have been approved for a credit card they were previously denied for after they opened a savings or checking account with the issuer.

These types of stories are more common at the extreme ends of the card range. If you have a borderline bad credit score, for instance, having a long, positive banking history with the issuer — like no overdrafts or other problems — may weigh in your favor when applying for a credit card. That’s because the bank is able to see that you have regular income and don’t overspend.

Similarly, a healthy savings or investment account with a bank could be a helpful factor when applying for a high-end rewards credit card. This allows the bank to see that you can afford its product and that you have the type of funds required to put some serious spend on it.

Having a good banking relationship with an issuer can be particularly helpful when the economy is questionable and banks are tightening their proverbial pursestrings. When trying to minimize risk, going with applicants you’ve known for years simply makes more sense than starting fresh with a stranger.

Some banks provide targeted offers

Another way having a previous banking relationship with an issuer can help is when you can receive targeted credit card offers. These are sort of like invitations to apply for a card that the bank thinks will be a good fit for you. While approval for targeted offers is still not guaranteed, some types of targeted offers can be almost as good.

For example, the only confirmed way to get around Chase’s 5/24 rule (which is that any card application will be automatically denied if you’ve opened five or more cards in the last 24 months) is to receive a special “just for you” offer through your online Chase account. When these offers show up — they’re marked with a special black star — they will generally lead to an approval, no matter what your current 5/24 status.

Credit unions require membership

For the most part, you aren’t usually required to have a bank account with a particular issuer to get a credit card with that bank. However, there is one big exception: credit unions. Due to the different structure of a credit union vs. a bank, credit unions only offer their products to current members of the credit union.

To become a member, you need to actually have a stake in that credit union. In most cases, this is done by opening a savings account and maintaining a small balance — $5 is a common minimum.

You can only apply for a credit union credit card once you’ve joined, so a bank account is an actual requirement in this case. That said, your chances of being approved once you’re a member aren’t necessarily impacted by how much money you have in the account.

In general, while having a bank account with an issuer may be helpful in some cases, it’s not a cure-all for bad credit. Your credit history will always have more impact than your banking history when it comes to getting approved for a credit card.

For more information on bad credit, check out our guide to learn how to rebuild your credit.

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