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What is a signature loan?

Find out if your credit is strong enough for no-collateral financing.

A signature loan is an unsecured personal loan. This means you don’t need to back it with any collateral, and the lender offers funding based on factors like your credit history. While signature loans are less risky for the borrower, they can come with higher rates and are harder to qualify for than secured loans.

How do signature loans work?

A signature loan gives you funds based on your record of repaying debt. It’s also known as a good-faith or character loan. This is different than a secured loan, which is dependent on the collateral you use to back your loan — like a savings account, car or house.

With a signature loan, you can usually borrow between $2,000 and $50,000 at APRs that range from 4% to 36%. Typically, you can apply online in a few minutes and provide an e-signature instead of a hand-written signature. You can often get your funds as soon as the next business day.

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Types of signature loans

Credit unions are more likely to call their unsecured loans “signature loans,” though any unsecured loan counts as a signature loan. These include:

  • Unsecured direct loans. These loans are funded directly by the lender, like a bank or credit union, without collateral.
  • Peer-to-peer loans. Instead of a lender, a group of investors crowdfund these loans, which typically don’t require collateral.
  • Debt consolidation loans. Personal loans made to manage your debt are also often unsecured and only rely on your signature to complete the application process.
  • Student loans. Student loans are generally unsecured — though most lenders don’t call them signature loans.
  • Short-term loans. Installment and some payday loans generally don’t require collateral — unless you provide a post-dated check. These are available to borrowers with bad credit, but at extremely high interest rates.

    Should I get a signature loan?

    You might benefit from a signature if some or all of the following apply to you:

    • You have good to excellent credit. You typically need a credit score of around 670 or higher to qualify for a low rate. But it’s possible to find lenders that accept fair or bad credit.
    • Your income is consistent. You need to have proof that you regularly bring in enough money each month to afford your loan repayments, like a pay stub or bank statement.
    • You don’t want to use collateral. If you don’t have collateral or don’t want to take the risk, a signature loan is your best option.
    • You need funding fast. Signature loans tend to have a faster turnaround time because the lender doesn’t need to appraise your collateral or take out a lien.

    What should I watch out for?

    Signature loans might be less risky for the borrower, but there are some drawbacks.

    • Higher rates than secured loans. Lenders offset the risk of an unsecured loan by charging higher interest rates than if you used collateral.
    • Fees. Many lenders charge an origination fee — especially those that work with fair- or bad-credit borrowers.
    • Prepayment penalties. Some lenders charge a fee if you pay off your loan early to cover the interest you would have paid. This can happen with secured loans as well, but it’s not as common.

    How do I apply?

    The exact process depends on the lender, but generally you’ll follow these steps:

    1. Check your credit score. Knowing your credit score can help you find a lender you qualify with — and alert you to errors in your credit report if it seems too low.
    2. Know what you’re looking for. Have a specific loan amount and monthly payment in mind before you start comparing lenders so you know which ones to weed out.
    3. Compare lenders. Shop around online by comparing factors like rates, fees, turnaround time, loan amounts, terms and requirements.
    4. Prequalify. After you narrow down your choices, prequalify to compare more personalized rates and finalize your choice.
    5. Fill out the application. Typically, you can get started on the application on the lender’s website — if not fully complete it online.
    6. Submit your documents. Upload, fax or mail in documents the lender requires, like copies of your W-2 form, your most recent pay stub, bank statements and a copy of your ID.
    7. Sign your application. With an online application, signing your application often involves checking a box that gives your consent to an e-signature and entering your name and the date.

    How do repayments work?

    Signature loans are usually installment loans. You repay them with fixed monthly repayments toward the loan balance and interest over three to seven years. Short-term signature loans and bad-credit signature loans sometimes come with weekly repayments and have terms as short as three months.

    Bottom line

    While a signature loan includes all unsecured loans, most lenders don’t use that name. Your best bet to find a signature loan is to search for a personal loan. And you can get started by reading our guide to personal loans.

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