Many credit unions as well as some regional and national banks issue signature loans. This product can help borrower’s access money in a short period of time and is an alternative financing option that can be looked into. A signature loan is an unsecured financing product that could come with a higher interest rate, so this type of loan may not be for everyone.
Lenders will offer this option as an alternative that comes with quick approval and it doesn't require collateral. It can be used when someone has an unexpected, short term expense or bill, such as a car repair. It can help people bridge the gap to pay the bill until they receive their next paycheck. It can provide people money in a hurry.
A number of credit unions offer this to their customers, and some banks and other finance companies may also provide it. It is a type of personal loan that uses only the borrower's promise to pay as collateral as well as their signature on the paperwork. Interest rates on a signature loan will normally be higher than other products due to the lack of any real collateral on behalf of the borrower. Some lenders may call this a character or a good faith loan.
Interest rates, credit history, and terms
From time to time people may need some extra cash quickly, but maybe they don't have any form of collateral to secure a loan. If you fall into this category, banks and lenders may offer a form of unsecured, short term loan offering which is called a signature loan. While it will often come with a higher interest rate, so it should only be considered as a somewhat last resort, it is still a better option than dealing with a payday lender. There are a number of guidelines in place, and they are usually driven by the applicant’s history.
Any company that issues a signature loan will usually ensure the applicant has a source of income as well as a fairly solid credit history, however different criteria may be in place by each bank, and exceptions can always be met. Some credit unions may require a co-signer. If they do request that, the co-signer would normally only be signing a promissory note, and they would be called upon only if the primary signer/borrower is unable to repay the loan in full.
When exploring various options to receive short term cash, a borrower should only choose a signature loan when they are in great need and only if they have the income to repay the loan in a very short period of time. You do not want to roll over this type of loan product. The reason why is that the interest rates, while they will vary, can run very high. Some signature loans issues by certain banks may have even higher rates than credit cards.
There is rarely automatic approval of the application. Depending on the request submitted, as well as circumstances surrounding the loan and the applicant, a review will need to occur. Some of the factors that may be reviewed include ability to re-pay, the applicant’s income, someone’s payment history (with all creditors), the circumstances surrounding the loan request, credit scores, etc. Depending on the bank, some lenders will approve a signature loan of up to $10,000 or more. Never take out more money than you need. However the amount will usually be determined by the payment history and credit ratings of the borrower.
There is usually privacy around these products. Most credit unions won’t request a detailed reason for the signature loan, although having more detail can sometimes help during the approval process, especially in borderline cases.
Repayment and prepayment options can vary widely. They can be repaid as a single-payment note due at a specific date (for example 30-, 60- or 90-days out), individuals can set up monthly payment cycles, or a signature loan can often be prepaid early.
There are various ways to apply. It is fairly common for regional banks and credit unions to lend money using an unsecured signature loan for whatever purpose the borrower chooses. It can be similar to using a credit card, however a key difference is that the amount borrowed is generally used to paying for a specific bill or expense, and it will be paid off with a pre-specified number of payments. A number of banks and lenders can issue these products. Some examples include Chase, San Diego County Credit Union, Bank of America, and Denver Community Credit Union. Call your lender to inquire. Or find additional sources of emergency short term loans.
Advantages and disadvantages of signature loan
Interest rates can be high. While they can be competitive and in the same general range as a credit card, they will still be higher than other financing options, such as an auto or home equity loan. People need to be committed to paying them off as soon as possible, and they should only be used for paying a bill or expense in an emergency. If you do not have income coming in over the next couple or several weeks to pay it off, then this loan probably should not be used. Otherwise someone could enter into a dangerous cycle.
On the plus side, signature loans are much better alternatives to some other options, such as a payday loan. This is the case as the interest rate and any fees will be lower. It can also be a reasonable way to consolidate higher interest rate credit card debt into a lower rate. However if you use this option for debt consolidation ensure you closely compare the new and old rates.