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What Is a Signature Loan?

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Signature loans are personal loans that don’t require collateral and can be used for just about any purpose. If you have good credit and are looking to finance a purchase, a signature loan can help you cover that expense. However, they aren’t for everyone — so be sure to do your homework before agreeing to borrow from a lender.

A signature loan is an unsecured personal loan, which means you don’t have to back up your loan with collateral.

As the name implies, signature loans rely on the promise of your word — or your signature — to repay in full. You can use one for just about any purpose. Some of the most common reasons for getting a signature loan include debt consolidation and emergency expenses.

Pros and cons of signature loans

While signature loans are good options for some consumers, they’re not without their pitfalls, which could put you in an even worse financial position than before. Here’s what you need to know about their pros and cons:


 Don’t require collateral, so your lender can’t seize your possessions if you default

 Can help build your credit if your lender reports to the credit bureaus

 Depending on the lender, can receive funds within one business day

 May have to pay an origination fee, which can be as high as 12% depending on the lender

 Late or missed payments can pull down your credit score

 If you have bad credit, you could have up to a 36% APR

Because signature loans don’t require collateral, lenders will heavily weigh your credit score and history to decide whether to approve you. A signature loan is a lump sum of money that you pay back each month with a fixed annual percentage rate (APR). Your payment will be the same each month.

Unlike credit cards, signature loans come with repayment terms, so you know exactly when you’ll be done paying off your debt. Signature loans can range from terms as short as 12 months (see short-term loans) or as long as 15 years (see long-term loans).

Applying for a signature loan is like applying for a personal loan. These are the steps you’ll likely follow:

  • Understand your credit score. Checking your credit score before applying for a loan can go a long way in helping you figure out which lenders you’ll qualify with. It can also help you estimate what interest rates you may qualify for.
  • Create a budget. It’s not a good idea to borrow more than you can afford. Putting together a simple budget can give you an idea of how much room you have for a monthly payment. Use a personal loan calculator to determine what your monthly payments may look like.
  • Apply with multiple lenders. You can check for potential offers from lenders if you prequalify for personal loans. While these won’t be firm offers, it will give you an idea of what to expect without any impact on your credit.
  • Submit a formal application. Once you pick a lender, you’ll need to fill out a formal loan application and verify the information you provide. Your lender may ask for bank statements, paystubs, W-2s and a copy of your ID. Your lender will likely run a hard credit pull so they can view your full credit background.
  • Close on your loan. At the end of your process, you’ll need to sign a loan agreement. Once you officially close on your loan, your lender will deposit your money into your account. The loan funding timeline will depend on your lender.

Can I get a signature loan with bad credit?

Because signature loans rely heavily on your credit score, it will likely be difficult to qualify for a loan with a bad credit score. While there are signature loans for bad credit, if you do qualify, you’ll likely get matched with APRs as high as 36%.

Bad credit signature loans aren’t your only option, however. Some lenders offer signature loans with no credit check. Typically, this means the lender doesn’t run a hard credit pull or base your eligibility on your credit score. A cosigner loan requires you to apply with a second person, typically a friend or family member. This can lessen your risk as a borrower in the eyes of lenders since two people are taking responsibility.

A signature loan is a type of personal loan. Just like signature loans, personal loans have fixed APRs, terms and monthly payments. However, personal loans come in the form of unsecured — also referred to as signature loans — or secured loans.

Secured loans are backed by collateral, which is a valuable asset or piece of property you own. The type of collateral you can use depends on the lender, but common forms include savings accounts, vehicles or real estate. Since they come with collateral, secured loans typically have lower rates than unsecured loans. However, if you default on your loan, your lender can repossess your collateral.

Depending on your preference, you can apply for a loan online or in person. Here are some of the most common places to find a signature loan:

  • Banks: While these types of lenders typically offer competitive APRs, terms, loan amounts and perks, they tend to have stricter eligibility requirements. To get a signature loan from a bank, you’ll likely need a good credit score and a positive credit history. You may also need to be a current customer of the bank.
  • Credit unions: Because their APRs are capped at 18%, credit union personal loans tend to be affordable. Like banks, however, you’ll likely need solid credit to qualify. Credit unions also typically require that you become a member before you can access a loan.
  • Online lenders: Online personal loan lenders tend to have lower credit requirements than banks and credit unions and may base their approvals on more than just your credit. However, you may pay more interest with an online lender.

You’ll likely need a good credit score to get a signature loan since lenders use that to evaluate the risk of giving you money. A good FICO Score is at least 670, while a good VantageScore is 661 or higher.

Because signature loans are a type of personal loan, they can be used for just about any purpose as long as it fits the lender’s policies. Common loan uses include debt consolidation, unexpected expenses, medical bills, home improvement projects, credit card refinancing, weddings and travel.

Whether a signature loan is a good idea depends on your credit and financial position. If you have good credit and room in your budget to afford a monthly payment, it may be worth it to apply for a signature loan. However, there are risks to taking out a personal loan especially if you have poor credit or can’t afford the monthly payments.

Signature loans can improve your credit as long as your lender reports your payments to the credit bureaus. Your credit bureaus will record those payments on your credit reports which are used to calculate your credit score. Before signing for your loan, make sure your lender reports to at least one of the three major credit bureaus.