Quick Facts About Signature Loans
Also known as a good faith loan, a signature or character loan is a form of unsecured personal loan offered by banks or lending institution and uses a borrower’s signature or promise to pay as collateral. Unlike home equity loans, these loans don’t require you to put up real assets like your car or home as security to get funding.
To qualify for a signature loan, you must have a good credit history, and a stable source of income to show your capacity to repay the loan. These loans have gained popularity with the emergence of online lending, which has made it easier for borrowers to apply online and get approved faster.
Uses of signature loans
Research has shown that many people lack enough savings to handle emergencies when they pop up. Borrowing money, therefore, is normal and sometimes inevitable. Many people will resort to borrowing to tide them through a financial crisis until that time when they are stable financially.
- Debt consolidation – get a low interest signature loan and use it to pay off your credit card balances or any other debts if their interest rates were higher, and save some money in the long run.
- Major home renovations – if you are thinking of an extreme makeover for your home, these loans can come in handy.
- Unexpected expenses – life is unpredictable. Hospital bills, a leaking roof that needs fixing or a student’s fee balance that can’t wait will need quick cash.
- Vacations and holidays – you don’t have to postpone your holiday plans. Signature loans can help you fund that vacation.
- Moving house or to a different state.
How much can I get as a signature loan and what is the cost?
Lending criteria vary from lender to lender, but these loans range from $500 to $20,000. The loan amount you can qualify for, however, will largely depend on your credit score and capacity to repay the loan.
Since these loans are unsecured, the interest charged on them is higher than other loans that are backed up with real collateral. Lenders will use your credit score, loan term, and income to determine the interest rate for your signature loan.
The length of signature loans can vary from a few months to 5 years. Lenders, however, prefer shorter terms due to the risk involved.
How do I apply for character loans?
Just like any other loan, you’ll have to fill out a loan application form online or in the lender’s physical office.
For your loan request to be approved, you’ll have to fulfill the lender’s requirements. Most lenders will require that you
- Produce proof of a source of income,
- Be at least 18 years old,
- And have an active checking account and contact details.
The lender will then review your loan application and if you qualify for funding, you’ll receive notification of your approval. The review and approval process is usually fast because there are no lengthy credit checks.
The online lending platform has made it easier for borrowers to apply and get approved for a loan from the comfort of their homes or offices. This has led to the popularity of these loans.
Can individuals with bad credit get approved for good faith loans?
For any lender, bad credit is a sign of a delinquent borrower. Lenders will shy away from such borrowers or offer them loans with high interest rates to cover the risk involved.
Since signature loans are unsecured, they are usually difficult to obtain for individuals with bad credit. Lenders are quite strict and will require that borrowers meet their creditworthiness criteria.
You can still be approved for a signature loan despite your bad credit but the interest rate will be higher than normal. To avoid the high interest rate, you can get a cosigner who’ll sign an agreement that should you default on your monthly payments, they’ll pay on your behalf.
If you decide to guarantee someone for a loan, make sure they are trustworthy and won’t default on payments or you could feasibly afford to make repayments in place of the borrower.
What should I do before taking out a signature loan?
Just like any other major financial decision, you should take due precaution when taking out loans.
You need to do a lot of research and compare the loans offered by different lenders. Compare their rates, terms, and conditions before you settle for any.
You can also do personal credit checks online to know your credit standings. From your credit reports, you’ll know your scores, how much you are eligible for, the length of the loan and the interest rate you are likely to be charged. You will also know what lenders want and settle with the most affordable.
It’s also important to check with banks or credit unions as they offer more competitive rate than other lenders.