Signature Loan Terms

Unforeseen expenses can be a drag on your budget and overwhelming. When strained financial times come, you may look for quick cash sources that can relieve your financial pressure. Many people, when faced with financial difficulty take out a loan to help cover the costs. The quickest and probably most accessible type of loan when needing a quick cash source is a personal signature loan. A personal signature loan is any type of loan you can get just by signing a loan agreement. There are several different types of signature loans all dependent upon your situation, how much you need, and your credit history. When looking for a personal signature loan, there are several factors to consider, the most important of which are the terms of the signature loan you choose. The general terms of a signature loan and details of why and how they are important are as follows:

• Amount Borrowed
• Interest Rate
• Fixed or Variable
• Payback Period
• Early Payback Penalty
• Down Payment or Deposit
• Fees - Broker Fee, Origination Fee, etc.
• Insurance for the Lender

Amount Borrowed

The amount borrowed for a signature loan can vary widely. Your needs will determine how much you try to borrow, but a signature loan can generally get you anywhere from $500 to $50,000. The amount you are allowed to borrow is determined by your credit and payback history and the type of signature loan you take out. The lower the risk for your lender both from yourself and the type of personal signature loan you take out, the more you will be able to borrow and the better terms you will get on the loan. Those with good to great credit can expect to be able to borrow more than those with poor or bad credit.

Interest Rate

A personal signature loan interest rate is set in part by the federal government, and in part by your personal FICO score (also known as your credit score). The lower your credit score, the higher your interest rate will be. If your credit score is low enough you may not even be able to get a personal signature loan. Since 40% of your credit score is determined by your payback history, lending institutions will raise the interest rate considerably if your credit score isn't great. For most personal signature loans, the lending institution is assuming most if not all of the risk. This results in higher interest rates. If you decide to go with a secured personal signature loan, your interest rate will drop as you are assuming most if not all of the risk by pledging collateral that the lending institution takes should you default on the loan. Interest rates on personal signature loans vary widely from 3% for a secured signature loan for someone with great credit to 25% for a bad credit signature loan. Where you fall in the interest rate spectrum will be determined by your credit score, the amount you are borrowing, where you are borrowing from, and the payback period, which will be discussed more below.

Fixed or Variable

Another term of your loan that will have a direct effect on how much interest you pay will be whether your interest rate is fixed or variable. A fixed interest rate is one that will not change over the life of your loan.The interest rate that you began with is the same interest rate you will end with. This makes things easy to calculate and determine just how much the loan is actually going to cost you before you take it out, but fixed interest rates are generally a little higher than variable to start out. If you choose a variable interest rate, it lowers the cost of your interest up front, but it may not lower the cost of your interest in the long run. A variable interest rate is one that changes depending on market conditions. It goes up and down as the market goes up and down. Since the market is fickle, variable interest rates have been known to get very high over the life of a loan, but sometimes a variable rate can save you money over a fixed rate. If you are willing to risk what you will have to pay in interest, it may pay off in the long run to choose a variable interest rate.

Payback Period

The term of your loan affecting how much you will have to pay each month on your loan is the payback period. Payback periods generally range from 1 to 72 months depending on the type of signature loan you take out and the amount of it. The most common payback period for a large signature loan is 60 months. Your payback period also has an effect on your interest rate. Generally, the longer your payback period, the lower your interest rate can be to start with as the lender will still be getting a profit. You also need to look at your payback period to determine if you will be able to carry the loan for the full length of the period. What will your finances look like? If your finances are at all uncertain it wouldn't be wise to take out a loan.

Early Payback Penalty

Many loans carry an early payback penalty, meaning if you pay the loan off before you reach the end of the payback period, you will also have to pay an extra penalty. Lenders do this to ensure they will be receiving all of the interest they would make on your loan rather than loosing some by allowing you to pay it off early. An early payback penalty is not something you want attached to your loan in case you can pay it back early and ease your financial burden. Many "no-fee" lenders carry an early payback penalty to make sure their lending institution makes a profit on your loan. Be sure to find out whether an early payback penalty applies to your personal signature loan and the amount before you take out the loan. The early payback penalty is normally a percentage of what you still owe on the loan, or a set fee that does not change no matter how much you have already paid on the loan. Be sure to find out what type of early payback penalty applies to your loan if one is in the terms.

Down Payment or Deposit

The amount of your loan will determine whether the lender will require you to make a down payment or deposit on the purchase. Larger loans, such as $10,000 or more typically require you to declare what the purchase is for and have 5-10% of the money before the loan institution will give you a personal signature loan to cover the rest of the purchase. A secured signature loan will require that you not touch your savings account during the life of the loan as a deposit should you default on the loan. If the balance of your savings goes down, they can immediately seize the remainder of the funds, even if you have not defaulted on your loan, so be sure to find out what is required before you sign the loan documents.

Fees - Broker Fees, Origination Fees, etc.

On top of the interest and the primary you will be paying on your loan, part of the money you pay the lender goes toward miscellaneous fees. The terms and conditions of the loan should list what those fees are and how much within the contract. The fees can include, but are not limited to: broker fees, origination fees, processing fees, insurance fees, and amortization fees. You will be paying for more than just the loan and the interest on the loan, which is more than the lender gives you in your loan to begin with. This is something you need to realize before you ever take out a personal signature loan. Just because a lender offers you a low interest rate, doesn't mean you are getting the better deal. In all likelihood you are paying higher fees than the place that offers a higher interest rate. Be sure to read the contract carefully and find out exactly what you will be responsible for paying and how it will affect your monthly payment.

Insurance for the Lender

Some lenders require you to pay for payment protection service, particularly if you have bad credit or you are borrowing a large sum of money without collateral. This type of insurance allows lenders to give money to more risky clients, but it does hit the borrower with one more thing they need to pay for in order to take out a loan. This is one term that you can negotiate on. If you have good credit or you have secured your loan with collateral, be sure that payment protection insurance is not in the contract for you to pay for. Some lenders put it on all loans they approve, but if it isn't necessary, then you shouldn't have to pay for it.