Loans are usually offered only when the collateral involved is good enough to cover a certain percentage of the principal, isn’t it? Although not all loans require you to bring collateral. Surprised? That’s actually true. Student loans are one of the most generous loans and there’s a particular type of student loan called – Signature Student Loan, which even goes to the extent of abolishing the need for collateral. All you need to do here is just sign a promissory note that you will repay the loan in the future. If you are curious to know more about this fantastic student loan then continue reading till the end of this blog. We will explain everything about Signature Student Loans and also talk about its pros and cons.
What Is A Signature Student Loan?
A signature student loan, also known as a “good faith loan” or “character loan,” is a type of personal student loan offered by banks and other finance companies that only requires your (the borrower’s) signature and a promise to pay as collateral. Technically, there is no collateral involved. This loan can be used for any purpose pertaining to education. However, do note that the interest rates will be relatively higher than other forms of credit due to the absence of collateral.
You may also want to read: Education Loan Interest rates and How it Can Change
These loans are also known as “good faith loans” because the lender has determined, through the underwriting process, that you’re a good bet to succeed in repayment. The promissory note is sufficient to receive loan funds. You agree to repay the loan over a set amount of time with a predetermined interest rate.
When Would You Possibly Need A Signature Student Loan?
Once you have completed your FAFSA (Free Application for Federal Student Aid) and have received your Student Aid Report detailing all the available financial aid options, you may find that you are still short of the mark in paying for your college education. It is this gap — created by the exhaustion of loans and the complete cost of attendance of college — that the Signature Student Loan aims to bridge. As the next step, you would need this supplemental loan to help close the funding gap.
Eligibility Criteria For The Signature Student Loans
The signature student loans are available for students in the US. In order to be eligible, you must be studying in a recognised college. You must have attended such community college for at least half of the four or five years degree course.
The signature student loan is exclusively available for US citizens. However, international students are also welcomed to apply. As an international student, you will be asked to produce a co-signer who is a permanent resident or citizen of the US. Both foreign and US resident students need to produce CSI documents.
Recommended Reading: FAFSA for International Students
The signature student loans have set specific credit criteria for the applicants. According to the criteria, you should not have any default loans. All the previous loans must have been paid off (if any). The signature loans can be easily obtained by you if you have a good academic record.
The signature student loans are available for all students; except the law graduates. Law graduates who are pursuing higher education are advised to seek other private loans. Normally, the college or the school in which the student is studying helps in the application process.
Are Signature Student Loans Federal or Private?
The most common question in the minds of students is: Are signature student loans private or federal? The answer is that these loans are private loans but they are essentially backed by the federal government.
Common Uses Of A Signature Student Loan
The following are the common cases where a signature student loan proves to be handy.
- Debt Consolidation: Let’s say you get a signature loan with a 6% interest rate for an amount equal to the total of balances that you are carrying on credit cards, with rates ranging from 12% to 20%. You can use the signature loan to pay off the credit cards in full. You will realise that there is a huge scope of saving money at 6% rather than at the former higher rates.
- Emergency Funds: An emergency can occur at any time and result in a desperate need for fast money. A signature loan can help in such a situation.
- Other Large Expenses: You may take out an unsecured loan to take care of your home repairs or improvements that don’t involve using your home as collateral. One example of this type of loan is a home equity loan. Or, your parents may sometimes sign for a loan to help pay for your school expenses without taking out additional student loans.
Pros And Cons of Signature Student Loans
Here are some pros and cons of signature student loans.
- Signature student loans can be taken out very quickly as opposed to federal student loans.
- These loans offer fixed and variable interest rates.
- Plus, here you have the ability to choose the length of your repayment term.
- Signature student loans, as the name implies, need only a signature to take out the loan. With no collateral attached to the loan, the financial institution takes on more risk. This excess risk is compensated by a higher interest rate on the loan.
- These loans can also have a negative impact on your credit if you fail to secure a few of them.
- Since signature student loans don’t require collateral, they can also be harder to qualify for. The higher minimum credit score requirement sets the bar a little too high.
Do Read: How to Get a Lower Interest Rate on an Education Loan
Signature Student Loan Forgiveness
Although private student loans including signature student loans do not qualify for forgiveness, there are federal options available if you have a mix of federal and private student loans. These include income-driven repayment and federal student loan forgiveness programs.
That’s it for this blog. If you are also considering getting this signature loan then all you have to do is fill this form ➡️ A professional team from UniCreds will get in touch with you to ensure you get the best student loan for yourself.
Thank you for reading this blog on ‘Signature Student Loan – The Most Popular Type of Unsecured Loan’. If you enjoyed reading this blog and would like to continue reading more about student loans then do check out our following blogs.