A signature loan is a type of loan that is offered by many banks and other financial institutions that only make use of the applicants signature as collateral. A Signature loan is commonly availed by people who have no other options. The following page outlines signature loans and what they offer.

What Are Signature Loans?

When one avails a signature loan, the borrower can use the money borrowed in many different ways. However, a borrower should be reminded that every signature loan comes with a high interest rate because it is availed with no form of collateral to show to the lender.

For many who are already familiar with signature loans, they call this a good faith or character loan. Signature loans are known as good faith loans because the lender has to have good faith in the borrower, meaning the borrower is trusted to deliver on the payment agreement. On the other hand, it is also called a character loan because the borrower may only provide his identity and his signature as a form of collateral. This will give the lender the option to approve the signature loan application, accepting only the signature as collateral.

Signature Loan Applications

How can you avail a signature loan? The creditor will first look through your credit history. This means the lender has to know if you have had a positive way of dealing with your previous loans or if you were delinquent in making your monthly obligations. So your credit history is one of the deciding factors as to whether your signature loan application gets a yes or a no.

Another deciding factor is your current source of income. This tells the creditor that you have the resources to pay your monthly obligation. A co-signer may also be required by a creditor for a signature loan but here, the consigner only needs to sign a promissory note. The co-signer is only called upon when certain circumstances occur like when the borrower is no longer able to pay for the loan.

Signature Loans And Interest

Signature loans may come to you with a very high interest rate: a signature loan may have an interest rate that is exceedingly higher than credit card loans. The creditors charge more in interest because there are high risks providing loans with no collateral required.

Whatever your preferences are, what matters most is that you should pay your monthly loan obligations regularly so that the next time you borrow, you can avail a loan with lower interest rates than a signature loan.