What is a Signature Loan?
Understanding the Signature Loan
Signature Loan vs. Revolving Credit
Examples of Signature Loans
What are signature loans different than personal loans?
Who are signature loans generally beneficial for?
How much can people get with a signature loan?
The Bottom Line

Personal Loans, Lending

Signature Loan
By Julia Kagan
Updated January 05, 2023
Review by Thomas Brock
What is a signature loan?

A signature loan, also known as"character loan, "good good faith loan" or "character loan," is a type of personal loan provided by banks and other finance companies that only requires the borrower's signature and an agreement to pay collateral. A signature loan is typically used for any purpose the borrower chooses, although the interest rates may differ from other forms of credit due to the absence of collateral.
The most important takeaways

A signature loan is a loan that relies on the signature of the borrower and guarantees to pay the sole collateral for the loan.
Interest rates on signature loans tend to be more expensive than other forms of credit due to the absence of collateral.
The lenders will grant signature loans in the event that they determine the borrower has enough income and has a strong credit history.

Understanding the need for a Signature Loan

To decide if it is appropriate to grant the signature loan an institution typically looks for a solid credit history and sufficient income to pay back the loan. In certain cases the lender might need a cosigner to the loan however the cosigner will only be required in the event that the original lender defaults on payment.

Signature loans are one kind 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 refers to the loan is paid back over a set period and paid off with equal installments each month.
Signature Loan vs. Revolving Credit

Applications for regular credit or credit revolving loans generally result in a delay while the banking institution or loan company scrutinizes the credit history of the applicant and examines their personal creditworthiness. By contrast, the funds obtained through signature loans are transferred to the account of the borrower faster which allows for earlier allocation to financial needs.

Once the Signature loan is paid off, the account is closed and the borrower has to seek a new loan should they require more funds. A Revolving credit account permits the indebted party to repay the loan and maintain the credit line until the borrower or lender decides to stop the relationship and shut the account.
Some examples of Signature Loans

The borrower can use signature loans to fulfill a variety of reasons, including home improvements as well as unexpected costs, medical bills, holidays, and other significant expenditures. Certain borrowers also make use of Signature loans to consolidate debts.

Cosigning a signature loan may help a borrower with a minimal credit history or with a low-income.

Let's suppose that a borrower receives a signature loan with a 7% interest rate for an amount equal to the credit card balances on credit cards, and rates ranging from 12% to 20 percent. The borrower then uses this signature loan to pay off the credit cards in the full amount. The borrower will realize distinct savings by repaying the exact amount at 7% instead of the earlier higher rates.

If you're contemplating taking out an individual signature loan or an individual loan calculator could be useful in determining what the monthly payment and the total amount of interest is depending on the loan amount that you're planning to borrow.
What do signature loans different from personal loans?

Signature loan is a form that is a personal loan. It's distinct from other types of personal loans because it's not secured. The only collateral is the borrower's signature as well as an agreement to pay.
Who do the types of signature loans typically beneficial for?

People with good credit scores are usually eligible for signature loans due to the fact that they have an excellent track record of repaying debts and are a low chance of default.
How much do people borrow with a signature loan?

They could start just $500.2 Be aware that not all credit unions and banks participate.
The Bottom Line

A signature loans are a type of personal loan which requires just the promise to pay collateral. While in the past they were generally offered to those with low credit scores, today they are pretty mostly reserved for those with higher credit scores. Remember there aren't all lenders that offer signature loans and interest rates tend to be higher than secured loans.
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Personal Guide to Loans

Personal Loan: Definition, Types, and How To Get One
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Understanding Different Loan Types
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Unsecured Loan
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Signature Loan
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What is a payday loan? How It Works, How to get One and the Lawfulness
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Can Personal Loans be tax-deductible?
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Are Personal Loans Considered Income?
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Are Personal Loans Included in Bankruptcy?
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Can personal loans be transferred to a different person?
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What effect do personal loans have on your Credit Score
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What is an Amortization Schedule? How to Calculate With Formula
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Personal Loan Interest Rates: How to Calculate a Personal Loan is Calculated
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How do I apply for a Personal Loan
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Best Personal Loans
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Best Small Personal Loans
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Best Bank Loans
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Best Peer-to-Peer Lending
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Top Online Personal Loans
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The Best loans for fair Credit
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Best Personal Loans With the Co-Signer
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Related Terms
Character Loan Definition
An individual character loan is an unsecured loan which is based on the credit score and reputation of the borrower, instead of the loan that is secured with a home.
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Unsecured Loan
An unsecured loan doesn't require any type of collateral, but to be approved for one you'll need credit.
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What is a loan, What is the process, Types, and Tips on Getting One
A loan is the term used to describe property, money or any other items given to a third party in exchange for future repayment of the loan value, which includes interest.
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What is The Equal Credit Opportunity Act (ECOA)? The purpose
The Equal Credit Opportunity Act (ECOA) is federal civil rights law which prohibits lenders from refusing the credit of a prospective applicant for any reason that is not related to the applicant's capacity to repay.
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Credit Score Credit Score: Definition, Factors and Strategies for Improving It
The credit score can be described as a score from 300 to 850 which evaluates a person's creditworthiness. The greater the score, the more favorable a borrower is to prospective lenders.
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Line of Credit (LOC) Definition, Types, and Examples
The term "line of credit" (LOC) is an arrangement between a bank and a customer that sets a fixed borrowing limit that is pulled often.
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