By David Pilley on August 31, 2011
.jpg.aspx?width=75&height=75) Signature loans and payday loans: what’s the difference? That’s a good question. And when someone says “that’s a good question,” that typically means there is no straight-forward answer. There are numerous lenders trying to lure you into getting a signature loan, and you cannot be happy-go-lucky in buying one. The simple fact is a signature loan, if used the wrong way, is an easy way to add up more personal debt and damage your credit score.
“The Perfect Solution.” That is what one online lender says about signature loans. Another site has a woman doing a fist pump while holding $100 bills in her other hand. Yet another website (which seems a little more subdued) advertises with a couple holding each other and smiling. These are all example of hyperbole, and in reality, a signature loan is rarely ever a good option.
Signature loans, in fact, are just like payday loans, except they deal with an even larger amount of money and time. The payment on a payday loan is due back in two weeks. With a signature loan, it’s usually due back in 60 days. With a payday loan, you will rarely get above $1,000. Contrast that to lenders offering signature loans. Some of them offer loans up to $25,000! The payback plan with a signature loan may vary, with monthly payments or even weekly payments. You wouldn’t be wrong in thinking a signature loan sounds just like another credit card. You might be wondering if a signature loan has a high interest rate, and the answer would again be yes. The rate on a signature loan will be above 10%, that’s a guarantee. It will only be higher if you have bad credit.
The “positives” that lenders advertise are even more deceptive and, in most cases not really positives at all. Pay for “a family vacation, back-to-school supplies, or virtually any reason.” Well, it’s an absolutely terrible idea to take out a loan to go on a vacation. Something like home repairs or school supplies may be more understandable, but there are better ways than an unsecured signature loan. “If you need to make a major purchase but don’t want to tap into your savings account.” Well, if you make late payments on the loan, you might end up taking funds out of your savings, anyway. “Signature loans offer the convenience of non-revolving, unsecured credit.” Well, it’s only a convenience if you make timely payments. Unsecured credit may be the reason you’re in debt in the first place.
Sure, signature loans are available to you, whether you have good or bad credit. However, you won’t have much luck with one unless you have a reliable source of income. If you’d gladly pay tomorrow for a hamburger today, you’d better make sure you can pay for it when specified. This is the key to dealing with any type of loan.
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