Everyone falls on hard times once in a while. Emergencies happen, whether in the form of a car accident, an unexpected medical bill, or a sudden job loss, and it’s always wise to have a plan in place for when they do. Good faith loans are just one available option, but they’re becoming increasingly popular with consumers across all income levels. Read on to find out how this type of loan works and whether it’s really the best option.
What Is a Good Faith Loan?
A good faith loan can be offered by a bank or another financial institution. In either case, it requires no proof of income, and the borrower’s signature acts as the sole collateral. As a result, they’re also referred to as signature loans by some lenders. When people seek assistance from King of Kash and other personal loan providers, they’re taking out good faith loans.
The Pros of Good Faith Loans
Taking out a good faith loan is a relatively low-risk way to secure some extra cash in an emergency. It’s also available to those who don’t have a high-value property to put up as collateral, which can make a big difference for some low-income borrowers. However, people from all walks of life can appreciate these benefits:
1. Flexibility
Good faith loans are personal loans, which means they offer a huge degree of flexibility. They usually have higher limits than personal lines of credit and are not associated with a specific type of spending, as are mortgages and car loans. Borrowers can use the money however they want as long as they pay it back on time.
2. Easier Budgeting
Signature loans are usually set up as fixed-term loans. That means before a borrower signs on the bottom line, they’ll know exactly how long it will take to pay back the loan, how much interest will be added to the principal, and how large the monthly payments will be. This makes it much easier to budget than taking out a credit card or spending 100% of an emergency fund.
3. Debt Consolidation
When borrowers have credit card bills to pay, they sometimes find themselves buried in debt not just because of what they’ve charged to the cards but also as a result of the high interest rates. When they have multiple high-interest credit cards, the situation can become even more untenable. Taking out a good faith loan can allow debtors to consolidate credit card debt and start taking advantage of what signature loans have to offer, usually including lower interest rates.
So, What’s the Catch?
The catch is that borrowers with low credit scores may not be able to get very good interest rates on good faith loans. Lenders use credit scores, proof of income, and other documents to determine the likelihood that the person will pay back the loan without the added incentive of collateral. If they deem the chances to be low, the interest rates will be high.
Find the Right Lender
With the right lender, even borrowers with low or no credit can take out good faith loans with interest rates they can afford. The best place to start looking is online since most banks only work with borrowers who have good credit. Thankfully, there are online lenders that make the process of taking out a signature loan quick and easy without creating a huge drain on borrowers’ finances.
