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What is a signature loan?
Signature loans are unsecured personal loans that don’t require you to put down collateral when you apply. Instead, lenders will heavily weigh your financial situation, taking your credit score and debt-to-income ratio into consideration when determining eligibility. Here are a few other things to know about signature loans:
Funding is issued in a lump sum. Loan amounts range from $1,000 to $50,000 (or more). If approved, the money may be disbursed directly into your bank account.
Monthly payments are predictable. You’ll repay the loan in fixed monthly installments over a set period of time, typically a few years.
Interest rates are fixed. When you get a signature loan, your APR — which includes your interest rate, as well as any other fees — will stay the same until the loan is paid off.
No collateral is required. Signature loans are backed by your promise to repay the lender, and you don’t risk any assets being repossessed if you default on the loan.
Your credit score is heavily weighed. Banks and lenders rely on your credit score and payment history to determine your loan eligibility. Applicants should have good credit or better, defined as a credit score of 670 or greater using the FICO model.
Start the application process online, over the phone or in person at the lender branch. You’ll provide basic personal and financial information.
Prequalify to check your estimated APR. Not all lenders offer prequalification, but those that do allow you to see the types of loan terms you may qualify for with a soft credit check.
Provide documentation such as recent pay stubs, tax documents and/or bank statements. Lenders may ask you to provide documents, like a driver’s license or passport, to verify your identity.
Formally apply for the loan. At this point, the lender will conduct a hard-credit check. Lenders will use your financial information to determine how much money they will lend you, your interest rate and what fees they may charge you for the loan.
Receive your loan funds, which may be disbursed as quickly as on the same day your application is approved, depending on the lender.
Who signature loans are best for
Because signature loans aren’t secured, lenders will rely more heavily on your creditworthiness, weighing your credit score and debt-to-income ratio rather than your collateral. This makes signature loans best for those with good credit scores and low debt-to-income ratios. Having a good credit score can also give you the best chance at qualifying for a lender’s lowest APR rates.
Signature loans are a form of personal loans. Personal loans can be unsecured or secured — secured meaning the loan requires collateral, such as a vehicle or home. Signature loans fall into the unsecured personal loan category so these types of loan are more heavily based on a borrower’s creditworthiness and promise of repayment. If you’re struggling to get your credit score up, however, there are bad credit loans available.
Signature loans vs. secured loans
A signature loan is a type of unsecured loan. When you’re borrowing money, you’ll usually need to make a decision between selecting a secured loan and an unsecured loan. Here are some key differences between these two types of loans:
Not secured by collateral, like a mortgage or auto loan
Typically have a shorter loan term
Tend to carry higher interest rates than secured loans
May offer smaller loan amounts since you don’t put up collateral
Secured by an asset you own, like a your home or car
May offer a longer loan term
Tend to have lower interest rates than signature loans
Can have higher loan amounts, since it’s backed by collateral
Signature loans vs. personal line of credit
A personal line of credit provides a borrower with a credit account with a capped amount that you can borrow from and utilize as needed, like a credit card. While you’re shopping around, you may need to decide what type of credit would be best for your current financial situation. Here's what you need to know about signature loans versus personal lines of credit:
Typically have fixed-APR rates
Oftentimes amount and rates will depend on use of the loan
Must pay interest on entire lump sum of loan
Tends to have lower interest rates than lines of credit
PERSONAL LINE OF CREDIT...
Come with variable-APR rates
Can be used toward any purpose
Only pay interest on the amount you take out
Typically has higher interest rates than personal loans
FAQ: Signature loans
Yes, a signature loan is an unsecured personal loan. You’re not required to put down collateral, and you can borrow the money with just your signature. The amount you can borrow is typically based on your credit history and income.
It depends on the lender. Some lenders can fund you the same business day that you are approved. Other lenders can take days or weeks to disburse your loan.
Some lenders may charge you an origination fee to process your loan application. The origination fee is usually expressed as a percentage of the loan amount. You may also encounter other fees, such as a prepayment penalty (if you pay off your loan early) or a late payment fee.
Your lender may charge you a late fee depending on how many days it receives payment beyond your due date. The amount you’ll pay and the number of days before you incur a late fee will depend on your lender. If you go long enough without paying your loan, your credit score may take a hit.
The credit score needed for a loan will depend on the lender you’re borrowing with. For example, while SoFi requires a credit score of at least 680, Happy Money has a much lower credit score requirement at 550. However, having a good credit score (at least 670) will generally help your chances of getting approved.
The amount you’re able to borrow will vary from lender to lender. Typically, signature loans range from $1,000 to $50,000, though some lenders offer loans as large as $100,000.