A signature is commonly referred to as a personal name. It only requires the borrower’s signature which the financial institution use as collateral. The lender relies on the borrowers signature as proof that the loan will be paid. Before the borrower has his or her loan approved, the lender checks the credit history of the borrower. 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. We look at the benefits of personal loans.
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 loans serves as an emergency loan as it is quick to process, unlike other types of loan that takes time to process. Personal loans are processed faster as compared to other types of loans since the applicant does not require to provide any documents or assets. No time is taken in verifying the documents and forms. It also takes less time to disburse the loan to the borrower.
The applicant is not required to state the purpose of the loan when applying. With other loans, the borrower indicates the purpose of borrowing, and further, use the same cash to fulfill that purpose. Loans such as car loans require the applicant to purchase a vehicle and proof that the money was not diverted to other purposes.
Signature loans do not dictate that money be used for only the intended purpose. There is lower risk when it comes to personal loan as no asset is required to serve as collateral. Borrowers who default signature loans have a lower risk of losing any assets the lender can do little to recover the loan. In case the lender sues the borrower, he or she will only be declared bankrupt as there was no asset attached to the loan.
Below is a discussion of some of the disadvantages of personal loans.
Financial institutions charges a higher rate of interest for signature loans compared to other types of loans. The high rates are as a result of lack of collateral attached to the loan. Signature loans do not allow the borrower to pay the loan in parts. It attracts a shorter repayment period as compared to other types of loans. Since the repayment periods is shorter, the monthly deductions are high. The high installments amounts forces many borrowers to default their loans.