The definition of a signature loan is a loan that doesn’t have attached collateral. These loans are offered by many lending institutions, including mainstream banks such as Wells Fargo, Chase, Bank of America, and HSBC, among many others. Of course, many institutions use a different name to describe these loans – often ‘unsecured personal loans’. No matter what they are called by each institution, they are a loan given to an individual who isn’t offering collateral. Therefore, auto loans and home loans aren’t signature loans because the vehicle or home would be used as collateral on the loan.

Thousands upon thousands of people each day hope that they can take out these loans. The credit scores of these people of course varies wildly. For individuals that have solid credit and ample income, taking out a signature loan is very simple. For those who lack either a solid credit history or income, these loans are difficult to qualify for.

The Truth About Bad Credit Signature Loans

The honest truth is that these loans don’t really exist for people that have bad credit. At least, they don’t really exist for people whose credit score is below 600 (some institutions may provide loans for scores dipping to the 550 range, depending on the actual items in the credit history). Some people may believe that they have bad credit but can still qualify because their score is in the 620+ range.

While there are a few alternatives to signature loans, we should never lead people to believe that they can take out a loan of this type with bad credit. It simply doesn’t make sense to any lender to loan money to people that don’t pay their bills.

Why Banks Can’t Loan Money To People With Bad Credit

It doesn’t make sense for a bank to loan money to those whose credit scores are below 600 because they have shown a severe lack of financial control. They generally either have a ton of late payments or they are using their credit cards poorly. As you use more and more of your available credit, your credit score is affected adversely.

It makes absolutely no sense to lend money to a person in this position for two primary reasons:

• Either way, they have clearly shown that their finances aren’t under control. People don’t max out their credit cards for no reason and they don’t make late payments for no reason.
• Opportunity cost. Many banks don’t have unlimited funds and therefore need to make their loan decisions wisely. Loaning to individuals with solid credit history makes the most sense.

Why Some Lenders Specialize In Bad Credit Loans

There are definitely many lenders in the U.S. that specialize in lending money to individuals with poor credit. This happens because these institutions are able to charge more interest to these individuals. This of course changes the business model drastically. These loans generally happen when people are buying homes and/or vehicles so that the lending institutions have their collateral. The change in model is that the bank will have to seize homes and vehicles quite often to recoup the damages caused by lack of payment. These lenders try to gauge who will be the best risk so that they can minimize the damage.

We of course know that many of these ‘subprime’ lenders went out of business during the credit crunch of the last few years.

How To Prepare Yourself To Take Out A Signature Loan

I’ve said this a million times before on this site, but the process is actually quite simple. Stop paying your bill late. Never again make a late payment on a bill – especially on a credit card bill. Late payments kill your credit score and make you look terrible to a bank.

Open at least two credit accounts. If you don’t have credit cards, get some. If you can’t qualify for a regular card, get a secured credit card. Make each payment on time. You should spend very little on your credit cards while trying to get limits that are as large as possible.

Stop spending money that you don’t have. Exercise financial control.

You will generally see that banks will respond before your credit score does. If they can see a bunch of on-time payments back t0 back, they will start to trust that you will make your payments to them on time. If all that they can see is a poor history, they won’t loan you money.

Alternatives To Signature Loans

I almost hate to bring up these types of loans, because their terms aren’t that great. Generally speaking, people who take out these types of loans simply hurt their finances. However, there are a few options.

1. Personal loans/Cash advances/Payday loans

These loans are of course ridiculously expensive and often have interest rates over 1000%, APR.

2. Payroll loans/ Business POS loans

These loans are also generally quite expensive but are useful in some situations. They are technically a cash advance, like a payday loan, and are offered to individuals who run a lot of volume through their monthly credit card machines.

If you want my advice, fix your credit so that you can take out reasonable loans in the future.

Before considering a bad credit debt consolidation loan, think very carefully about your financial status. Once a consolidation loan goes into effect, it often has to remain in place if bankruptcy is declared further down the road. In the past, it was a dishonorable thing to declare bankruptcy, but times have changed with our current bad overall economical situation. Consumers are wise to consider all options before deciding upon what the best option is for your unique financial situation.

Debt consolidation loans for people with bad credit are fairly easy to get for users that do not mind paying high fees or finance charges due to their past credit mistakes. When consolidation loans are considered, users must add up all of the fees, finance charges, and potential late fee costs before deciding what the actual price of the loan really is. At times, the cost of fees takes a pleasant sounding refinancing situation into a situation that is worse than the original set of circumstances that the consumer is trying to improve.

Consolidation loans are often structured as one large loan that pays off all smaller creditors. These loans are often secured with real estate or another valuable asset that the consumer might lose if the new loan goes into default. When consumers are unsure about the stability of their employment, or their ability to make payments on a secured debt consolidation loan, they might want to think about exploring some of the other available options for debt reductions before the possibility of losing the family home or valuables.

When consumers take out a large debt consolidation loan, they are allowed to have their attorney look over the paperwork before signing. While this might sound like an expensive proposition to somebody who is low on cash, there are many debt reduction specialist attorneys who are willing to work with your budget. When an attorney chooses to specialize in debt reduction, they understand upfront that their clients cannot afford hundreds of dollars per hour so that fees are kept reasonable.

When a debt reduction attorney is asked to explain the terms of a debt consolidation loan to a client, they will explain all hidden costs and words on the documents so that the consumer is fully aware of what they are signing. The attorney is trained in all avenues of debt reduction so that they can also explain other possibilities for debt reduction and consolidation that the consumer might not be aware of. A licensed debt reduction attorney can often save consumers a lot of money when it is time for a debt consolidation loan.

You don’t have to search around much to realize that online loans for bad credit are all the rave these days. There are literally thousands of online lenders who will provide loans to almost anyone. The problem is that many of these loans carry astronomical interest rates and get people into difficult financial positions that they can’t escape from.

Most of the people that take out these online loans with bad credit will end up paying interest rates that are at least 20%. This is incredibly high but is nothing compared to what some of these lenders are charging.

Most of these bad credit online loans are actually payday loans. Some of them are carefully disguised and other lenders will just come straight out to say it. Either way, these loans are excessively expensive. If you tried to calculate the APR of most payday loans you’re going to end up with interest rates well over 1000% – yes that’s three zeros.

You don’t want to pay that kind of interest and if you do, your financial position will definitely worsen. You’d be a lot smarter to start improving your credit now so that in a few short months you can take out a signature loan with a much better interest rate.

Advice For Those Considering Online Loans

Before you take out a loan with an online lender, I want to strongly encourage you to figure out EXACTLY how much money it’s going to cost to pay off the loan. Lenders will hide this from you and you need to go into it aware. Most of the time you’ll end up paying double or triple the amount you borrowed to get these loans paid off. If you’re ok with that, feel free to proceed. At least you’ll know what you’re getting yourself into.

I see a lot of people getting themselves into loans without understand exactly how much money it’s going to cost. They are desperate and will do anything to solve their current crisis without realizing that they are making their position much much worse. They refuse to look at the position that they are creating for themselves.

Hopefully this article will make you think twice before taking out a bad credit online loan. If not, I hope that you will figure out exactly what you’re getting yourself into BEFORE you sign on the dotted line.