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What Is a Signature Loan?

Understanding the need for a Signature Loan

Signature Loan is different from. Revolving Credit

Examples of Signature Loans

What do signature loans different from personal loans?

Who are Signature loans generally good for?

How much can people borrow with a signature loan?

The Bottom Line

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Signature Loan

By Julia Kagan

Updated January 5, 2023.

Review by Thomas Brock

What Is a Signature Loan?

A signature loan is also referred to as”character loan, “good good faith loan” also known as a “character loan,” is an individual loan offered by finance companies and banks which only requires the borrower’s signature and an agreement to pay collateral. A signature loan is typically used for any purpose that the borrower decides to use it for, but the interest rates may exceed other forms of credit because of the lack of collateral.

Key Takeaways

A signature loan uses the borrower’s signature and guarantees to pay the sole collateral for the loan.

Interest rates on signature loans are typically higher than other forms of credit due to the absence of collateral.

The lenders will grant signature loans if they deem that the borrower earns enough and has a strong credit history.

Understanding the need for a Signature Loan

To determine whether to grant a Signature loan, a lender usually will look for a good credit score and sufficient income to repay the loan. In some cases it is possible that the lender will need a cosigner to the loan, but the cosigner will only be required in the event that the lender in question defaults on repayments.

Signature loans are one type of term loan. Unsecured refers the fact that these loans don’t have the security of any type of tangible collateral, as opposed to home mortgages or car loans. The term means that the loan is paid back over a set period and paid off in equal monthly installments.

Signature Loan is different from. Revolving Credit

Regular credit applications or revolving credit1 loans generally result in a delay as the bank or loan company analyzes the credit history of the borrower and scrutinizes personal credentials. By contrast, the money derived from signature loans are deposited in the account of the borrower more quickly and are able to be allocated earlier to financial needs.

As soon as the signature loan is paid in full the account is shut, and the borrower needs to apply for a fresh loan should they require more funds. However, a Revolving credit account permits the person in debt to pay the loan and maintain the line of credit until the borrower or lender decides to stop the relationship and close the account.

Exemples of Signature Loans

Borrowers use signature loans for a range of reasons, including home improvements, unexpected expenses including medical bills, vacations, and many other major expenses. Certain borrowers also make use of the signature loans to consolidate other debts.

A cosigner for a signature loan could help a borrower with a low credit history or with a low-income.

Let’s say a borrower gets an official loan with an interest rate of 7% for a sum equal to the sum of the balances that they are carrying on credit cards, with rates ranging between 12% and 20 percent. The borrower uses this signature loan to pay off the credit card in total. The borrower will realize distinct savings by paying back the same amount at 7% instead of the previous higher rates.

If you’re thinking about applying for an individual signature loan and you’re not sure how to calculate it, an individual loan calculator might be useful for figuring out the amount of your monthly payment and the total interest will be for the amount you’re looking to take out.

What do signature loans different than personal loans?

A signature loan is a form of personal loan. It’s distinct from other types of personal loans because it’s unsecured. The only collateral required is the signature of the borrower and a promise to pay.

Who do the types of signature loans typically good for?

People with good credit scores tend to be eligible for signature loans since they have an excellent track record of repaying debts and are a low chance of default.

How much can people borrow with a signature loan?

They can start at just $500.2 Remember, not all credit unions and banks are a part of the program.

The Bottom Line

Signature loans are a type of personal loan that requires only a promise to pay as collateral. Although in the past they were typically made to people with poor credit but today, they are generally reserved for people with better credit scores. Be aware there aren’t all lenders that provide signature loans and rates of interest are generally higher than with secured loans.