Is a signature loan a good idea?

A signature loan is a good idea if the loan is inexpensive compared to your other options and affordable based on your current budget. It’s also best if the expense you’re getting the signature loan for is truly necessary, as you don’t want to take on debt without good reason.

A signature loan is a loan that doesn’t require any collateral other than your signature. You can learn more about when getting a signature loan is a good idea below.

When a Signature Loan is a Good Idea

If the loan’s terms are better than your other options

You may get a lower APR on a signature loan than a credit card if you have good or excellent credit. However, some credit cards offer 0% APR introductory periods for as long as 21 months. So, if you need funds for a relatively small expense, a credit card may be a better option.

You may also be able to get a loan with flexible terms from a friend or family member. You risk damaging your relationship if you don’t repay the loan, though.

If you know you can repay the loan

Signature loans can take a few months to a few years to repay. You’ll need to make sure you can afford the monthly payments, along with your other monthly expenses.

Signature loans will also improve your credit score if you make all the monthly payments and do not default. On the other hand, late payments can cause credit score damage.  

If the expense is necessary

Signature loans can be used for almost anything, such as paying medical bills, consolidating debt or making a large purchase.

You can use a signature loan to pay for weddings or vacations, too. However, it’s best to save your money to pay for luxuries like these.  

Final Thoughts

In the end, a signature loan is a good idea if you can repay the loan and if the loan’s terms are better than your other options. To see the top-ranked offers, check out WalletHub’s picks for the best signature loans. You can also pre-qualify with multiple lenders using the free pre-qualification tool on WalletHub.