Did you know that you can get a loan using just your signature? It’s true. By simply signing your name on an application, you have the ability to get access to all sorts of credit: from credit cards to 5-year loans.
Signature loans are different from collateralized loans, which are basically loans where you put up some item as insurance. For instance, if you get a mortgage loan to buy a home, your house is collateral on that loan, an object still owned by the bank. If you fail to pay back the loan, the bank then takes your house back. A mortgage is an example of a non-signature loan.
A signature loan, on the other hand, has no collateral to back it up. Sometimes called a good-faith loan or unsecured loan, a signature loan is backed up by the good credit of the borrower, nothing more. So if you get approved for one but fail to pay it back, you would only get a nasty mark on your credit history. For this reason, banks typically offer signature loans with high interest rates. Collateral-backed loans (like mortgages) almost always have lower interest rates than signature loans.
But recently there has been a breakthrough called peer to peer loans, a new kind of signature loan with a much lower interest rate than typical no-collateral loans. The companies that issue peer to peer loans are not banks, but are completely run through the internet. Because they do not have to pay for tellers or bank vaults, they can offer lower interest rates than ever before.
Four Reasons to Get a Signature Loan Through Prosper
Prosper is one of these websites that offers peer to peer loans. Here are four great reasons to get a signature loan at Prosper.
#1. Prosper signature loans have lower interest rates. Period.
As I wrote earlier, Prosper is not a bank, so they have far fewer bills to pay than a big expensive bank. As a result, they can offer amazingly low rates on loans to people – as low as 6.73% for people with great credit.
A bank, on the other hand, often offers people with great credit an 8% interest rate. What is the difference between 6.73% and 8%? Let’s imagine you took out a $15,000 3-year loan with both. For the 6.73% interest rate loan you would pay $1,607 in total interest over three years. For the 8% loan, you would pay $1,922 in interest. That is a difference of $315 for the exact same loan.
In short, getting a low rate on your loan is really important.
#2. Prosper loans are simpler
Non-signature loans, like a car loan, involve all sorts of paperwork that authorize a local bank to take the car back from you if you fail to repay the debt. Secondly, these collateralized loans almost always require you to drive somewhere and sit down to sign paperwork. In this way, non-signature loans may offer better rates, but they can also involve a more complicated application.
A Prosper loan, in contrast, is done online from the comfort of your home. No need to drive anywhere. At some point in the application someone from Prosper may call you on the phone to verify your identity, but otherwise it is all electronically done through a computer. Simple and secure.
Prosper loans also have a fixed interest rate. For people who take on debt with their credit cards, their rate is variable, meaning it can change – and it often does. For example, if you are late on a payment, a credit card company can increase your interest rate. But with a Prosper loan, your interest rate will never change, even if you are late on a payment. The percentage you are quoted when you check your rate with Prosper will always be the rate you have to pay over the life of the loan. Simple.
Finally, you can always pay your Prosper loan off early without a penalty. Very simple.
#3. Prosper signature loans are quick
Getting a loan from a local bank can require a week or two where the bank runs your credit and considers whether or not you qualify for a loan. But Prosper qualifies you using an electronic method that is much quicker than anybody else. For instance, when I took out a Prosper loan in November, I had the money in my checking account just four business days later (read my review of Prosper loans).
For people who need money fast, Prosper is a really great option.
#4. For major debt, a Prosper loan is better than using your credit card
Do you know how most people go into debt? They use their credit cards, and this is a terrible idea. While a credit card is a great way to take on short-term temporary debt, it is a really bad tool for long-term debt. For example, I personally use my credit card to keep my different kinds of spending organized. But I always pay my credit cards off at the end of every month. In contrast, all my long-term debt (mortgage, student loans, car loan) is held in low-interest loans.
Here are the two main reasons why credit cards are bad for major debts:
- Credit card interest rates are too high
- With a credit card, you can always take on more debt
Let’s focus on point two: the ability to take on more debt. With a credit card, you can always be tempted to take on more debt while also paying it off. This “freedom” means the money is always moving in two directions, and results in many people remaining stuck in debt for a long time, bringing on stress and reducing their quality of life.
But with a Prosper signature loan, there is no option to add extra debt to the loan later on. The money can only flow one way. With a Prosper loan you always have a set date (either three or five years from your approval) where you will no longer be in debt. For many people, a guaranteed date of being debt-free is an incredibly good feeling to have.
Bottom Line: Check Your Rate at Prosper
Your signature has power. It can do a lot of things all by itself because it is a symbol of how responsible you are with money, how trustworthy you are to pay debt back. If you have decent credit (640+), loan companies like Prosper are really eager to get a signature loan in your hands because of how secure you are as an investment.
Secondly, your signature is all you need to apply for a peer to peer loan, a new kind of loan that is completely done through the internet. Since peer to peer loan companies are not banks, they can provide you with a lower loan rate than anywhere else.
Don’t believe me? Check your rate at Prosper and then walk into your local bank and check your rate on an unsecured loan there as well. Prosper’s rate will likely be lower.