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.

Signature loans are unsecured loans that you get from a bank. You don’t need to explain why you need them, frankly the bank doesn’t care. What they want to know is that you’ll be able to pay them back, and they figure this out by looking at your employment history, while also taking into consideration the information on your credit report.

Many people call these loans ‘personal signature loans‘. This happens because people often use ‘personal’ to describe loans that are for personal use. Since these loans can be used for any purpose, this name exists in some circles. For the most part, if you walk into a bank, they won’t know what you’re talking about unless you use the terms ‘unsecured loan’ or ‘signature loan’.

The most important thing to understand about bad credit personal signature loans is that they carry a lot of risk for the bank. For this reason, the bank won’t provide these loans to people whose credit is below a certain threshold. For example, people that have a score about about 600 are considered to have fairly bad credit. However, they will be able to qualify.

A person that has a credit score of 520, on the other hand, probably won’t be able to get this type of a loan. Since the loans are unsecured, they already pose a certain risk to the bank and the low credit score pushes it beyond the place where the bank is willing to go.

Most people are completely unaware that they can improve their bad credit quite easily if they put their mind to it. In many cases, this will need to be done if you need to take out a loan of this type. A few months of on-time payments can go a long way toward improving your situation. Additionally, your score will improve in a huge way if you pay down your credit cards. If you can’t qualify for signature loans right now, I would recommend taking two months to improve your score. After that you may be in a much better position.

Bad credit signature loans are also generally VERY expensive. Good credit loans of this type will run you 11% interest. The bad credit version will cost you closer to 18%.

These are tough economic times. Because of that, there are a lot of people who are looking for loans right now, and unfortunately, many of them have bad credit. While the ideal is to stay out of debt, it isn’t possible for some people. The real question for those people is whether they can still get a signature loan.

The answer lies in the details. There are plenty of banks out there that would give you a bad credit signature loan, as long as your credit score isn’t below their threshold. In most cases I think that the bank will want to see a credit score that’s over 600 for a loan of this type. Since they aren’t able to collaterize these loans, there is some extra risk there for them.

As long as your score is above 600, you should probably be able to find a bank who will provide you with signature loans without too much trouble.

Signature loans for bad credit aren’t available for people who aren’t employed. That wouldn’t make any sense at all to the bank. If you don’t have the ability to repay the loan, this increases the risk factor in a huge way and makes it impossible for the bank to help you out. You will have to get a job before you can expect to get a loan.

To recap, yes these loans are available, but they aren’t given regardless of credit. Those who have a score below six hundred will probably have to find a cosigner or figure out how they can offer some sort of security.

Finding signature loans for people with bad credit is honestly one of the hardest things out there. Since a signature loan has absolutely no collateral to back it up, the bank usually goes primarily on your credit and income.

When you go into a bank to apply for bad credit signature loans, you usually won’t have a ton of luck unless you have an extraordinary income. If your income is high and your credit is bad, the bank will sometimes offer you bad credit personal signature loans because they can honestly make bank from the ridiculous interest they’ll charge you.

If you take out this type of loan, you can plan on paying at least 15% interest and that’s a LOT of interest. Since most people don’t want to pay interest at that level, they opt for a different approach.

Signature loans for bad credit are the wrong way to go if you have any valuable assets. If you have a home with some equity or a paid-off car, you can get a better loan with a more desirable interest rate. As asset gives the bank a backup plan and that really helps your cause. While getting signature loans with bad credit is very difficult, getting a home equity loan with bad credit isn’t nearly as hard.

If you don’t have tons of options or if you have already been denied when applying for bad credit signature loans, you should seriously consider finding a cosigner. This will reduce the risk for the bank and if you’re serious about paying back the loan this can really help you out. Even if you give the cosigner a small monthly payment, it will save you boat-loads over what you would pay out at 15% interest.

Your last option really is to wait until you can improve your credit history. If you have bad credit you already know that it follows you around everywhere you go. This can become a huge pain eventually and at some point you need to get it fixed. You won’t be looking for bad credit signature loans once you get your credit score over 720. At that point anyone will give you a signature loan as long as you have a job.

You would be amazed at how quickly you can get your credit turned around if you will simply focus on it. If you clean up a few mishaps and make on-time payments on your credit cards for even a year, your score will increase significantly.

The bottom line here is that you need to refocus your energy. People spend a TON of energy trying to find sophisticated loans and if they could refocus that energy into improving their credit, good things would happen. I often see many many people trying to take out impossible loans like no credit check home loans – these loans don’t exist. Take control of your credit today and you’ll be able to get any loan you want to get tomorrow.