3 Best Online Signature Loans for Bad Credit

3 Best Online Signature Loans for Bad Credit
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Brittney Mayer
By: Brittney Mayer
Posted: June 21, 2018
BadCredit.org's popular "How-To" series is for those who seek to improve, rebuild or better understand their subprime credit rating.

Not long ago, before the age of credit reports and computer-assisted lending decisions, most deals were made based simply on the borrower’s reputation in the community — and sealed with a signature and a handshake.

While much has changed in the time since those days, signature loans are still a major part of consumer lending, though they’re more often simply referred to as unsecured loans (as opposed to secured loans, which require collateral).

Because signature loans aren’t backed by any form of collateral, they can be challenging to find for those with poor credit. That said, challenging doesn’t mean impossible, and there are options available for many potential borrowers.

Top Providers | How They Work | Considerations

Top Signature Loan Providers

Due to the difficulty of someone with bad credit finding signature loans, choosing a provider may simply come down to going with whichever lender will offer you a loan, nevermind being picky about rates and fees. But that’s not to say you shouldn’t still comparison shop as much as possible for an affordable loan.

Online lending networks can sometimes be the easiest way to comparison shop for signature loans when you have bad credit. Often boasting dozens to hundreds of partner lenders, online lending networks may increase your chances of finding a lender with flexible credit requirements.

   
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Loan Amount Interest Rate Loan Term Loan Example
$500 to $10,000 5.99% - 35.99% 3 to 72 Months

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Perhaps the most important thing to understand about online lending networks is that they are not actual lenders themselves. Instead, lending networks simply connect potential borrowers with lenders based on their needs and qualifications.

Most lending networks will have you fill out a single application, then they’ll use that application to find the lending partners willing to make you an offer. If you choose to accept an offer found through an online lending network, you’ll typically be redirected to the lender’s independent website to see the full loan agreement and to finalize your loan.

The lender will be the party to provide the funds you borrow, and it’s the lender to whom you’ll make your monthly loan payments. Signature loan funds can often be dispersed in as little as one business day, though it may take longer in some cases.

What Are Signature Loans & How Do They Work?

When all is said and done, signature loans are generally the same thing as unsecured personal loans, meaning signature loans can be used for just about anything and don’t require any sort of collateral or down payment to secure them against default.

The term signature loan comes from the fact that these types of loans use only your signature as assurance that the debt will be repaid.

For the majority of uses, signature loans refer to personal installment loans, though some companies may advertise short-term loans as signature loans, as well. Since the two types of loans are repaid in very different ways, be sure you understand the exact type of loan you are taking on.

Chart Comparing Short-Term and Installment Loans

In general, short-term loans are small loans ($2,500 and under) with terms of less than six months. These loans charge high finance fees based on the amount borrowed, and they are repaid as a single lump sum — including the full principal amount and all finance fees — on the specified due date. Short-term loans can have interest rates in the three digits, which make them a poor choice for most borrowers.

Installment loans, on the other hand, are typically larger loans ($500 and up) with terms that range from three months up to six years. As the name implies, installment loans are repaid via regular installments, usually monthly payments, that include both principal and interest payments.

Installment loans tend to have lower APRs than other types of unsecured loans, and the lower APRs and smaller payments make them easier to repay than short-term loans.

Important Considerations Before Taking Out a Loan

While the lack of required collateral may sound ideal for those borrowers who are already on a tight budget, that lack also means the loan is high risk for the lender — and risky loans are often expensive loans.

Basically, without collateral to rely on, the only real ways for the lender to get its money back are to take you to court or to sell the debt to an outside debt collection agency. Since the risk of losing out on some of its money is high, lenders charge higher rates and fees for the loan.

That’s why it’s always important to compare your options before taking on a new loan, particularly unsecured signature loans. Shopping around can become even more important when you have poor credit, as a low credit score already sets off red flags for most lenders.

When you compound a high-risk signature loan with a high-risk bad-credit borrower, the situation becomes untenable for many major banks, which is why signature loans for borrowers with bad credit are usually only available from specialized subprime lenders.

Bar Chart of FICO Credit Score Factors

Your payment history counts for more than a third of your FICO Score, so late payments can lower your score by dozens of points.

Furthermore, while signature loans won’t require collateral that can be lost, they’re not risky solely to lenders; the borrower also accepts a certain amount of risk when taking on a new loan.

For example, making late payments on your signature loan will not only result in late fees, it can also extend the time it takes to pay back the loan, which means more interest fees.

Plus, signature loans can knock dozens of points off of your credit score, which can take years to rebuild.

If the worst should happen and you default on the loan, you’ll not only hear from collection agencies for the next few years, but you’ll be nearly guaranteed rejection letters whenever you apply for new credit.

As with any financial agreement, be sure you understand exactly what you’re getting yourself into before taking out a signature loan. Carefully read through the loan agreement so you know what you’ll owe, when you’ll need to make payments, and what fees you’ll be charged.

Always Read Before You Sign

While business agreements once hinged on the strength of your reputation — and the strength of your handshake — today’s lenders are more interested in your credit score than your community work.

But, despite the more formalized system for gauging a borrower’s risk, you can still find unsecured loans that can be had for just a signature.

Of course, how easy it is to find a signature loan depends on your credit, and bad credit can make the process difficult. Rather than exacerbate a bad credit situation with an untenable loan, know what you’re getting into before you sign. If you have any doubt about your ability to repay your loan on time and as agreed, don’t get the loan.