Signature loans (also called personal loans or unsecured loans) are risky for lenders because there is no collateral that can be repossessed if you fail to make your payments. This means lenders look very closely at your credit score and your income -- sufficient income means you have the ability to repay a loan, and a decent credit score indicates your willingness to pay your bills as agreed. You usually need both of those things to qualify for financing. It's not easy to get a signature loan with bad credit, and if you're offered one, the interest rates and fees are very high and the amounts loaned are relatively small.
Signature Loan with No Credit Check
It's understandable that credit-challenged people would be attracted to advertisements for unsecured loans with no credit check. However, those products don't really exist. Really -- just because there are thousands of advertisements online doesn't mean these loans are available.
What these advertisers are really selling are title loans, payday loans or check advances. These are NOT true signature loans.
Title Loans, Payday Loans and Check Advances
The difference between these products and true personal loans is that these loans actually are secured. Title loans are collateralized by your auto title. If you fail to repay them, your car can be taken away. Check advances, aka payday loans, are also secured. You write the lender a post-dated check for the amount borrowed plus the lender fees, and the lender cashes the check at the end of the loan's term. That check is security because it can be used to force you to pay -- in many states, writing a bad check is against the law, and payday lenders have actually used the legal system to force borrowers to pay up.
Fees for Bogus Unsecured Loans
The hallmark of these
bogus personal loans is their extremely high fees and interest rates. It's not unusual for their interest rates to hit three or even four figures. According to the Center for Responsible Lending, the annual percentage rates (APRs) for these loans average over 400 percent! And it's not that hard to find online loans with rates over 1,000 percent!
These products can trap the most vulnerable borrowers in a cycle of debt. Borrowers pay a new set of fees each time the same loan is extended or "rolled over," which happens when they can't repay the loan right away. If a consumer borrowers $200 for two weeks and the fee is $30 (this is typical), that doesn't seem too bad -- probably cheaper than the bounced check his bank would charge. But that APR for that little loan is almost 400 percent! Even worse, the average consumer, says the Center for Responsible Lending, will roll that loan over eight times. In that case, it will cost this borrower $480 to pay back a $200 loan.
Finding Real Signature Loans
There are signature products available for people with iffy credit as long as they have the income to repay them. Interest rates for those with the lowest credit scores generally range between 30 and 40 percent. Yes, that's high, but it's not 400 percent.
A real signature loan requires an application, proof of income and a credit check. Period. The real signature loan is an installment loan, which means you get the money upfront and then make monthly payments for a predetermined term -- usually between one and five years. Loan amounts range between one thousand and thirty-five thousand dollars. Interest rates are determined by your credit rating, the loan amount and the length of time for repayment.
You can find real signature loans from reputable lenders here at LendingTree.