Another name for a signature loan is a personal loan. The borrower is only required to append his or her signature, and the bank uses the signature as collateral. The interest charged is relatively high as the financial institution relies on the applicants signature as a promise that the loan will be paid. The financial institution checks the credit history of the applicant before lending the loan. Those with credible sources of income and a good credit history have higher chances of qualifying for personal loans. he good thing with signature loan is that the borrower can use it for medical purposes, holiday etc. The borrower is only required to fill the application form and forward to the relevant departments handling the process. Below is a highlight of some of the pros of taking a signature loan.
The applicant only requires to sign the application form. Personal loans will not ask for collateral such as land or a house. Low income earners can access the signature loans as they do not have the fixed assets required when borrowing a loan.
The loan helps the borrower sort emergency cases as it is processed fast as compared to other loans. Since the applicant is not required to produce documents, the processing time becomes faster. No time is taken in verifying the documents and forms. Once the loan has been processed, the disbursement process also takes a short time.
It does not require the applicant to disclose the purpose of the loan during application. With other loans, the borrower indicates the purpose of borrowing, and further, use the same cash to fulfill that purpose. A good example is a vehicle loan, where the applicant will be required to purchase a car and produce proof that the money was not diverted to other uses.
Signature loans do not dictate that money be used for only the intended purpose. The personal loan provides a lower risk to the borrower, since he or she will not be required to produce any asset. Borrowers who default signature loans have a lower risk of losing any assets the lender can do little to recover the loan. The borrower can only be declared bankrupt in case the lender sues the borrower for defaulting to pay the loan as there was no asset attached to the signature loan during lending.
Below is a discussion of some of the disadvantages of personal loans.
Personal loans attracts an interest rate that is higher than the rest of the loans. High rates are charges because the loan has no collateral. With signature loans, no part payment is allowed and borrowers are supposed to pay the agreed amount at the agreed time. It attracts a shorter repayment period as compared to other types of loans. Shorter repayments periods attracts higher monthly deduction as compared to other loans like housing which have a longer repayment period. Many borrowers ends up defaulting their loans because of the high installments.