Most people are familiar with secured collateral loans where you use something of value to borrow a sum of money. If you default on the loan, the lender takes the collateral and sells it to help pay off the balance on the loan.
A signature personal loan, on the other hand, is an unsecured loan, similar to a credit card. However, unlike a credit card, the interest rates on signature loans tend to be significantly lower. In addition, the interest rates are normally fixed and locked in for the entire repayment period.
The amount of money one can obtain with a personal loan will vary based on several factors, such as your credit score, credit history, and debt-to-income ratio. You can borrow small amounts to much larger sums, depending on why you need the loan.
While your credit union or bank may ask the primary reason you want the signature loan, you can use the money, once approved, for just about anything. The only real restriction is you cannot use the loan money as a down payment to purchase a home.
Some people get a personal loan to consolidate their high-interest credit cards and pay them off. Other people get a signature loan and use it for home renovation projects. You could even get a personal loan and use the money to take a much-needed vacation! Essentially, you are free to use the money however you want.
Steps for Obtaining a Personal Loan
Obtaining a personal loan is not difficult. Most lenders, including our Texas federal credit union, make it possible to apply online. With a credit union, you will need to be a member, but it is not difficult to open a share savings or checking account first and then apply for your loan.
The first step, of course, is to fill out the loan application. Once this is submitted, the credit union or another lender will review how much you have requested to borrow and obtain a credit report to determine if you can be approved for the unsecured loan.
Once you are approved, you often need to sign some loan documents, which include the Truth-in-Lending details that show how much you are borrowing, the interest rate, the cost of interest, and the total amount you repay. It will also state how much your monthly payments are and the length of time of the loan.
How Does a Personal Loan Affect Credit Score?
Just like other forms of credit, a signature loan will affect your credit score. If you make your payments on time, it can help improve your credit score. Other benefits of signatures loans that can help your credit score include:
- Adds to Your Credit Mix: If all you have are credits cards and secured loans, a signature loan improves your credit mix and could improve your credit score.
- Could Reduce Your Credit Ratio: If you use the personal loan to pay down or pay off your credit cards, it could boost your score since your utilization ratio will be better. Signature loans are not included in the ratio since it is just used to evaluate the percentage of debt owed on credit cards.
- Helps Establish a Good Credit History: With on-time payments, you are building a solid credit history that can raise your credit score.
Signature Loan Bonus Tip:
If you are looking to rebuild your credit, consider our Credit Builder Loans. Once your loan is paid off, then the funds are released. With on-time payments, this is a great way to boost your credit score.
To find out if you qualify for a signature personal loan, please feel free to apply online at The People’s Federal Credit Union today! You may also stop by your nearest branch location or call us at (806) 359-8571 if you have further questions.