What is a character loan?
A character loan is a type of unsecured loan this is done because of the lender’s confidence in the reputation and credit of the borrower. Borrowers are usually only able to obtain small loans by this method. If the borrower is unable to repay the loan, the bank will most likely have considerable difficulty in recovering the loaned funds. Unsecured loans contrast with the secured or secured loans. With secured loans, the repayment of funds is securitized by valuable property or equipment, such as a car or a house.
How a character loan works
Character loans are often referred to as signature loans because they are only secured by the signature of the borrower. These loans are sometimes available from local banks and credit unions, especially for long-time clients of the institution.
To be eligible for a character loan, applicants generally must demonstrate an exceptional credit history and financial integrity. Lenders will be impressed by applicants who own local businesses, have worked in the same business for many years, or have owned a home for a long time. These acts indicate that the individual has undeniable roots in the community. Additionally, character or signature loan amounts are typically less than $ 10,000. They are reimbursed over a fixed period in equal monthly installments.
Character loans tend to occur in small towns where local bankers know the borrowers personally. In this way, the banker can attest to the character of the individual and feel comfortable taking the risk of an unsecured loan. These loans also remain popular in many Caribbean islands, where the communities are small and tight-knit.
A character loan is an unsecured term loan made on the basis of a borrower’s reputation and credit, usually with a higher interest rate and fees than a secured loan.
Character loans vs cash advances
For people who live in large cities, character loans may not be an option. Fortunately, there is a modern take on character loan: the cash advance. These often come from a credit card, but they can also come from other sources. As with small town character loans, credit cards are not secured by any collateral. If you do not repay the cash advance, the card issuer has nothing to take back.
Before getting a credit card, the issuer checks the borrower’s credit report and determines the likelihood of them paying off a loan. The issuer then decides the amount of the credit line it will authorize. Borrowers with poor or no credit may not be able to get a credit card or may only receive the minimum line of credit.
Due to their unsecured nature, character loans and credit card cash advances carry higher interest rates and fees than using a credit card to purchase goods or services.