A signature loan is a short-term loan requiring the borrower’s signature. The lender will give the money to the borrower by using his/her signature as assurance.
In other words, the lender trusts that the borrower will repay the amount by signing an agreement with them.
What is a signature loan?
What is a signature loan? A signature loan is a short-term loan that’s based on the borrower’s signature.
That means you don’t have to specify what you want the money for; the lender simply trusts that you’ll repay it.
In return, they can charge higher interest rates than traditional loans because they know there is little risk of defaulting on your part (as long as your credit history looks good). Lantern by SoFi advisors says, “Such loans don’t have any kind of collateral.”
The borrower will not have to specify what they want the money for
There are a few key differences between signature loans and traditional loans. First, the borrower will not have to specify what they want the money for.
The lender is not interested in why the borrower needs money; they only want to be sure that it will be paid back with interest.
Second, there are no documents that need to be signed by both parties (as there would be with other types of loans).
Third, since signature loans do not require any collateral and can be disbursed quickly and easily over any distance (including online), they’re usually fairly short-term, most typically lasting between two weeks and six months.
Finally, while there are some similarities between signature loan agreements and mortgages or car loans (you can read more about those here), it’s important to remember that these kinds of contracts aren’t open-ended like mortgages tend to be:
If you fail your monthly payment then things might get messy fast!
The lender will give the loan amount by using the signature of the borrower as assurance
Signature loans are one of the most convenient sources of finance. You can get money with a signature without having to specify what you want to use it for.
You also don’t need to provide collateral or pay a credit check: the lender is confident that you will repay the loan because of your good credit history and strong financial background.
The lender trusts that the borrower will repay the amount
One of the main reasons why signature loans are so popular is that they don’t require collateral.
The lender trusts that the borrower will repay the amount and does not ask for any securities. On top of this, signature loans are also relatively quick to process compared to other types of credit.
This is because there is no need for verification through third parties such as banks or credit card companies; your signature on a contract is all it takes!
Finally, signature loans do not require you to specify how exactly you will spend the money—you can spend it, however you want (within reason).
The borrower can use the money to buy a car, pay off bills or finance a business.
The interest rate and fees will depend on the amount borrowed and the length of time you want to keep the loan.
