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 interest charged is relatively high as the financial institution relies on the applicants signature as a promise that the loan will be paid. Before the borrower has his or her loan approved, the lender checks the credit history of the borrower. The lender approves loans for those with great credit history and a stable source of income. There are several functions that the borrower can use the money for. The process of applying is easy as it only demands the borrower fills a form and end to the lender. We look at the benefits of personal loans.
The loan does not require any form of collateral, only a signature. Other loans requires the applicant to provide collateral such as land, house, etc. 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. The time the lender takes to process the loan is faster as compared to other loans. 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. Other types of loans will require the applicant to disclose the reasons for taking the loan, and use the money for the intended purpose. Loans such as car loans require the applicant to purchase a vehicle and proof that the money was not diverted to other purposes.
With personal loans, the borrower can redirect the money to other uses. which requires to be attended. Since the borrower is not required to attach any asset, the risks to the borrower are minimal. In this case, the borrower does not lose anything when he or she defaults to pay. 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. High rates are charges because the loan has no collateral. The borrower does not get a chance of paying the loan in parts. Signature loans have a shorter repayment period since there is no collateral. The monthly deductions are higher as compared to other loans as the installments are spread within a short span of time. It is for this reason that most borrowers are not able to repay their loans on time, due to high monthly installments.