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What Is a Signature Loan?

Understanding the need for a Signature Loan

Signature Loan in contrast to. Revolving Credit

Exemples of Signature Loans

What are signature loans different from personal loans?

Who do signature loans typically good for?

What is the amount that people can get with the signature loan?

The Bottom Line

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Signature Loan

By Julia Kagan

Updated January 05, 2023

Reviewed by Thomas Brock

What is a signature loan?

A signature loan often referred to a “good good faith loan” or “character loan,” is a kind of personal loan provided by banks and other finance companies which only requires the borrower’s signature as well as a promise to pay as collateral. A signature loan is typically utilized for whatever purpose the borrower decides to use it for, but the interest rates may exceed other types of credit due to the absence of collateral.

The most important takeaways

A signature loan requires the signature of the person who is borrowing and promises to pay as the sole collateral to receive the loan.

Interest rates on signature loans are generally more expensive than other forms of credit due to the lack of collateral.

The lenders will grant signature loans if they deem that the borrower is earning enough and a credit score that is good.

Understanding a Signature Loan

To decide if it is appropriate to grant a signature loan, a lender typically looks for a solid credit history and sufficient earnings to pay back the loan. In certain instances it is possible that the lender will need a cosigner to the loan however the cosigner is only called upon in the event the lender in question defaults on payment.

Signature loans are a type of unsecured term loan. Unsecured refers the fact that they do not have any collateral. loans don’t have the security of any form of physical collateral, in contrast to mortgages for homes and auto loans. The term means that the loan is paid back over a set duration and is paid off with equal installments each month.

Signature Loan vs. Revolving Credit

Requests for regular credit or revolving credit1 loans normally trigger a funding delay while the banking institution or loan company examines the credit history of the applicant and examines their personal creditworthiness. In contrast, cash derived through signature loans are deposited in the account of the borrower faster, allowing earlier allocation to financial requirements.

As soon as a signed loan is paid in full, the account is closed, and the borrower needs to apply for a new loan should they require more funds. In contrast, a credit card that is revolving allows the indebted party to repay the loan and maintain the credit line until the borrower or lender decides to terminate the relationship and close the account.

Exemples of Signature Loans

The borrower can use signature loans to fund a variety of needs, such as home improvements as well as unexpected costs, medical bills, vacations and other large expenditures. Many borrowers use Signature loans to consolidate other debts.

A cosigner for a signature loan can help a person with a minimal credit history or a low income.

Let’s suppose that a borrower receives a signature loan that has a 7% interest rate for an amount equal to the balances that they are carrying on credit cards, with rates that range between 12% and 20 percent. The borrower uses his signature loan to repay the credit cards in total. The borrower can realize significant savings by repaying the same amount of money at 7%, rather than the earlier higher rates.

If you’re contemplating applying for a signature loan and you’re not sure how to calculate it, an individual loan calculator might be useful to determine what the monthly payment and the total interest will be for the amount you’re looking to take out.

What are signature loans different than personal loans?

Signature loan is a form of personal loan. It’s different from other kinds of personal loans because it’s not secured. The only collateral required is the borrower’s signature as well as a promise to pay.

Who are the types of signature loans generally good for?

People with good credit scores tend to be eligible for signature loans because they have established an excellent track record of repaying the debts they owe and are at a lower risk for defaulting.

What is the amount that people can borrow with a signature loan?

They could start the low of $500.2 Be aware that not all credit unions and banks are involved.

The Bottom Line

Signature loans are a kind of personal loan which requires just a promise to pay as collateral. Although in the past they were usually offered to those with bad credit but today, they are mostly reserved for those who have better credit scores. Keep in mind there aren’t all lenders that offer signature loans and rates of interest are generally higher than secured loans.