A signature loan can be a quick way to get some cash if you need it now, but you’ll pay high interest rates for getting your cash right away. Signature loans are similar to payday loans or getting a loan at a pawn shop. Unlike pawn shop loans, however, you don’t have to put up any of your belongings as collateral. Like payday loans, in some cases, signature loan customers may give the lender a postdated check for the amount they’ve borrowed plus the interest fee. The lender then deposits the check upon a specified date, usually when the borrower gets his or her next paycheck or two weeks from the date the lender initially gave the loan. The borrower signs a document stating the terms of the loan, repayment and interest.
Some states don’t allow certain types signature or payday loans because of the high interest rates borrowers must pay. Certain counties and cities in CA do not permit payday and signature loans, while others still allow them. State laws overall only allow borrowers to take out $300 at most on any signature loan, and the highest interest rate lenders can charge for these loans is 15%. By dollar amount, the most a lender can charge a borrower for interest fees is $45. Additionally, all signature loan lenders must ensure that their license issued by the State of California is prominently displayed where customers can see it. Laws also prohibit lenders from issuing more than one loan at a time to any one customer. In order for a lender to issue a new loan to a customer, he or she must have already repaid any outstanding loans.
Fees and Insufficient Funds
If, when the lender deposits the check, the bank returns the check due to insufficient funds, California law states that a lender may not charge a borrower more than $15. The borrower, however, may face additional charges imposed by his or her financial institution for writing a check with insufficient funds. A signature loan lender also may not apply any additional fees to the original loan or an extension of the original loan.
Using Signature Loans as a Last Resort
For some people a signature or payday loan gives them quick cash now to pay for an unexpected bill or some necessary costs until a greater amount of cash comes in within a few weeks. However, for a lot of people, signature or payday loans can become a revolving door of debt. Because of the high interest rates charged combined with the short terms of the loans issued by signature and payday loan lenders, it’s advisable that people looking for a loan find a less costly option, such as traditional lenders like banks, credit unions, and peer lenders.