Understanding Signature Loans

With Central Banks around the world increasing interest rates and banks increasing their standards of creditworthiness, it’s becoming increasingly difficult to get personal and business loans. When you do apply for a loan, there are some options, like a mortgage, car loan, cash advance, and many others. But, a signature loan is a particularly useful option for many people.

A signature loan is often synonymous with an unsecured loan. Security means that we put up collateral on the loan, like our house or car. These personal assets are therefore vulnerable to being taken away from us should be fail to repay a loan, similar to how the bank will take your home if you can’t repay the mortgage.

So, is it the same as a personal loan? As Financer.com points out, they are one of the same. A signature loan avoids all of the above by requiring no security. The name refers to how easy it is to sign your name on the dotted line, and that’s almost all there is to it. Furthermore, there’s no business plan or proposal that you have to persuade the lender about how you will use the funds, unlike a bank.

Who can get a signature loan?

Not everybody can get a signature loan, in part because of the added risk for the lender. A good credit history is required usually, but credit checks aren’t always required. However, there are often other requirements like having a steady income so the lender is sure that you can repay it. Some lenders, particularly the alternative online options, are taking this approach of looking at your current ability to make repayments as opposed to your credit history.

Ultimately, it will depend on the lender, but many online lenders can process an application within 24 hours and require very little paperwork. Newer online lenders use automated systems to scan your application and finances to determine your risk level. This is a stark difference to a bank loan, which can sometimes take weeks to process.

Who are signature loans for?

Signature loans do have a downside, which is that they’re slightly more expensive than secured loans. This is simply because they pose more risk to the lender, and interest rates closely reflect risk levels.

But, there are ways to keep the APR rates down, which is by having a really good credit score and ability to make repayments. Generally, the loans are more designed for short-to-medium term needs as opposed to long-term given the higher APR, making it ideal for emergency situations, short-term needs, and even consolidating debt. The loan amounts will be smaller than long-term secured loans.

Final Word

Signature loans are incredibly quick to apply for online, and they come without the risk of putting your personal assets up for collateral. However, APR can be higher than usual, making them ideal for the short-to-medium term. It’s possible to reduce the APR by having a good credit score and showing a strong ability to repay (i.e. steady income). It can be a matter of days before receiving the funds after an application.

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