A signature loan is a kind of personal loan that is unsecured. According to Investopedia, when a borrower obtains a signature loan, that person does not put up collateral like a house or car. Instead, all that is required is a promise to pay and a signature. There are many different reasons why a person may want a signature loan. Below are six common reasons that may surprise you.
1. To Pay for a Plumbing Nightmare
Unfortunately, not enough people have emergency savings. When an emergency does happen, they may not be able to pay for sudden expenses until the next paycheck. However, sometimes, it’s not a good idea to wait. If your house is being flooded due to a break down in your plumbing, you may need to take out a signature loan to pay for the repairs.
2. To Invest
Taking out loans to invest money doesn’t regularly sound like a good idea. However, there are certain cases where immediate action is wise. If you are made aware of a great investment that promises to pay out significantly in the immediate term, it may be wise to get some money together to make that investment. A signature loan can give you the funds to do so.
3. To Start a Business
It’s pretty much impossible for a new business to get a line of credit. To start a new business, a signature loan can be used to obtain the funds needed. It can also be taken out in the business’s name. That way, if the business fails, your personal property will not be used as collateral. Make sure to raise your credit score before obtaining a signature loan to start a business.
4. To Replace a Credit Card
Although signature loans should not be used as often as most people use credit cards, it may certainly be a better idea in many instances to use a signature loan to make a big purchase as opposed to buying on credit. It’s easy to understand why. According to Bankrate, personal loans tend to have lower interest rates. If you expect to make long term payments, a signature loan is a better option.
5. To Consolidate Your Debt
In certain cases, it may be a good idea to taken on a signature loan to consolidate your debt. A credit counseling service may suggest you do so. This is especially a good idea if the loan in question has a lower interest rate than the rest of your outstanding debt.
6. A Tornado Destroys Your Home
Even if you have home insurance, you still need to pay your deductible if your home is damaged or destroyed. The deductible may be $1,000 or more. A signature loan can get you the funds to do so.