It’s a loan that doesn’t require you to put up collateral like your car or home but provides your signature. A signature loan is an unsecured loan that you can take out by providing a lender with your income, credit history, and signature. It’s sometimes called a good faith or character loan, and only if you have good credit history and your income is enough that you can repay it can you qualify for this type of loan.
How Does a Signature Loan Work?
You can use a signature loan for anything you want. It’s an unsecured loan that you can use to consolidate debt, cover an emergency, remodel or home improvement or go on a vacation.
Lenders will use your credit history and income to decide the fixed interest rate of your signature loan. Because there are no assets or collateral involved, your interest rate will probably be higher than that of a loan of another type. A signature loan term can stretch from a few months to five years in duration; lenders usually like to offer shorter-term signature loans.
Is a Signature Loan the Same as a Personal Loan?
Yes, lenders think of a signature loan as an unsecured personal loan. A lender may or may not refer to it as a signature loan or an unsecured personal loan, but there’s no collateral such as a house or car connected to the loan. A signature loan requires a higher credit score and is more challenging to get than a secured loan such as a mortgage secured by your house.
Some Examples of When One Might Take a Signature Loan:
If you need fast cash, a signature loan can be an excellent way to go. It should, however, only be used as a short-term solution and can be spendy if you don’t have a high credit score. If you’re the sort of person who’s always short on cash and filling the gaps with signature loans, then review your budget, cut your expenses, increase your income if possible, and put your attention on saving money.
There ARE some legitimate reasons for taking out signature loans, though. Perhaps your emergency fund wasn’t quite enough to cover an emergency medical bill. You have a once-in-a-lifetime opportunity to invest in something or take that dream vacation with a significant discount.
How Much Can You Borrow on a Signature Loan?
That depends on what the bank or lender thinks about your credit history and income regarding how much money they will lend you with a signature loan. Signature loans can be from $500 to $50,000, but they tend to be smaller because they don’t require collateral and present more risk to the lender.
Benefits of Short-Term Loans
Loans that reach maturity quickly come with several vital benefits. They don’t require a hard credit inquiry that hurts your credit score, for instance. Short-term loans can be a solution for your financial dead-end.
How to Get a Signature Loan:
If you’d like to take out a signature loan, follow these steps:
1. Check Your Credit Score
Before applying for a signature loan, check your credit score. If your credit score isn’t up to the level that you’d like it to be, you may want to focus on improving it first if you can wait. The better your credit score is, the more probable that you’ll receive a more affordable interest rate. So, if you don’t urgently need money to cover an emergency expense, for example, waiting until you’ve shored up your credit score may be a smart move.
2. Gather All of Your Information
Most signature loan applications will ask you for the same personal details. You’ll likely have to provide proof of your monthly income, your employment, whether you’re a homeowner or renter or not, and your monthly housing costs. You may have to share your W-2 forms or pay stubs to prove your income, so gathering this information beforehand is a good idea.
3. Compare Your Options
Don’t go for the first signature loan lender you find—it’s essential to research and examine all your options. You can make an informed decision that way and reduce your risk of overpaying for your loan.
You’ll find that some lenders will list the minimum credit score they require for personal loans on their websites during your hunt for info. If you come across a lender that seems like a good prospect, but you don’t know if you’ll meet their criteria, you can contact them to find out. Applying for signature loans will cause hard inquiries on your credit report, so limit the application period to a short time. Only apply to a few loans you’re likely to qualify for.
Prequalifying you for a loan will not affect your credit score. Prequalifying is a great way to find out what other types of offers you may have.
4. Read the Fine Print
When you find a signature loan, you’d like to accept, read the fine print before signing. Make yourself informed about prepayment penalties, automatic withdrawals, origination fees, late payment fees, and other things that can increase the cost of your loan or unnecessarily surprise you.
5. Accept the Loan and Start Making Payments
If you’ve read the fine print and are comfortable with the terms, accept the loan. You may get your money in a few business days from some lenders, while others may take longer. Upon receipt of your funds, take note of when your first payment is due. Consider setting up automatic payments. Maybe adding extra money to your payments each month so you can pay off your loan more quickly would be a good idea?
Signature Loan vs. Revolving Credit?
Revolving credit – or a credit limit – is a form of loan that gives a borrower a predefined amount of money. At the end of the loan, the borrower has to pay the initial amount plus the interest owed.
The unique thing about revolving credit is the borrower’s ability to make minimum payments and carry-over or “revolve” – the debt remaining to the next billing period. The borrower will need to pay interest on the remaining amount; however, lenders might use revolving credit to manage the borrower’s monthly finances and cover any emergency expenses. It might be a better option than a signature loan in many cases.
Can You Get a Signature Loan With Bad Credit?
It is possible to get a signature loan with bad credit, but you’ll find it harder than if you had good or excellent credit. Lenders might also burden you with a higher interest rate, which will make your loan more expensive in the long run. Signature loans with bad credit can come with interest rates of 30% or more.
You may also need a cosigner to get approved. A cosigner is a friend or family member who will pay off the loan if you can’t. It cannot be easy to find someone to cosign a loan so that that requirement may stop you.
A Signature Loan Is a Short-Term Financial Solution
If you need fast funds, a signature loan can be a way to go. It should only be a short-term solution because it can be expensive if you don’t have the best credit. If you’re always short on money and taking a series of signature loans, something is wrong. Review your budget, cut your expenses, if possible, increase your income and focus on saving money.
The signature loan is almost impossible to get if you don’t have an excellent credit score and a big monthly income. But if you had this signature loan is a good way to cover some emergency or to have a vacation.
Signature loan because of the low insurance for the lenders have a higher interest rate compare to other loans, so try to avoid it if possible. Plus the excellent credit score is required.
I haven’t heard of this type of loans. My credit score is good, maybe I could apply because I have an emergency. Thank you for the information.
I do not recommend a signature loan for a long-term period. This type of loan is a way to go if you have an emergency and you need cash fast.
We all need some cash in some situations so these signature loans are a good option. If you are eligible than you are lucky.
I’ve taken once a signature loan although my credit score was not good. I was in emergency but the interest rate was up to the sky. It took me a long time to repay it.
Read all the words in fine print very carefully and ask all the questions in order not to be surprised when you see how much cash you borrowed and how much you will have to repay. These kinds of loans are with high interest rates, so you end up repaying them for a long time.
I’ve heard of signature loans but I didn’t know what are they.
These kinds of loans are suitable for me, because I don’t like to put my house or my car as collateral.
Just make sure you are informed of every aspect whenever taking a loan from lenders. We are all in emergency and we just want to take some cash and to repay our dept and we forget to check everything.
You are right, signature loans are good when you have a big emergency and you can deal with the fact that the interest rate is very high.
Thank you for the wonderful articles. This way even we who are not financial wizards can find information of what is good and what is not.
Signature loans are often good for small amounts and to cover some emergency need of cash. The long term one and big amounts of cas come with very high interest rates and you will need a long time to repay them.
I didn’t know that this type of loan can be up to $50.000. I’ve always thought that these loans are small. However even then for this amount you pay very high interest rates. And if it is up to 30%, we should all think before taking it.
As you stated for this type of loan you need to have an excellent credit score and most of us do not. And if you have a good credit score you can take any loan you want and not this one with high interest rates.