Comparing the Advantages and Disadvantages of a Signature Loan

There are now more types of loans and this makes it easier for people to find one which is appropriate for their situation. One of the most popular types of loan today is the signature loan. A signature loan is so-called because all it needs is your signature on the agreement. There is no need for collateral to get this loan. The person’s signature is collateral enough but not just anyone can get this loan. Only people with good credit can qualify for this type of loan. Unlike the no credit check $5000 loan, lenders will verify your credit score. Although this loan has a lot of benefits to offer, it also comes with disadvantages. This is not a perfect loan.


There is no need for collateral. This is one of the biggest factors about this loan which attracts people to it. Let’s face it, not a lot of people have collateral to offer. Not a lot of people who need money quickly own cars, homes or expensive jewelry.  It can be very difficult for people who do not have assets to get secured loans. However, you should not let the fact that this loan does not require any collateral prevent you from paying regularly. Because even if you do not lose your assets, you can still be taken to court and late payments and missed payments will result in a credit score which is low.

There is lower risk for borrowers. The fact that there is no collateral reduces the risks for borrowers. If you opt for a secure loan and you default on payments, you could end up losing your home, car or other property. With unsecured loans that will never happen. But, as mentioned earlier, even if you do not lose any property, you could end up being taken to court.


One of the downsides of a signature loan is the fact that there are higher financing fees. Lenders charge higher interest rates in exchange for the low risk to borrowers. This allows lenders to get higher profits and cover the risks they are subjecting themselves to. As a borrower, you have no choice but to agree to the terms if you want to get the loan. However, it will be wise for you to try comparing the rates of several lenders before agreeing to any terms.

Because of the fact that the interest rates are higher, this also translates to higher monthly payments. So, before you take out this loan, you have to make sure that you will be able to afford the monthly payments or else you will have very big problems.