If you’re thinking of acquiring a personal loan to help cover personal costs, you’ve probably had a look at the different options available to you. While the basic features of all the different personal loans are quite similar, there are some subtle differences that end up having a huge impact on how viable the loan is for your particular situation.

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Introduction

Signature Loans

Signature loans are a form of unsecured personal loan that many Americans choose to use for a variety of reasons. They’re extremely helpful for those who do not have assets to secure against a loan. If you’re looking to borrow money, but you want to accept as little risk as possible, signature loans are often one of your best options.

But approaching the subject can be difficult. It can be hard to understand all the little differences between these forms of finance. If you want to make sure that you’re well aware of the implications of signature loans, you’ll want to read the rest of this guide. This article has been created specifically to help individuals better understand the signature loan market. We’ve compiled all the information you need to be an expert on signature loans – after reading this article, you should know if this is the right type of lending product for you!

Signature Loan Features

So, what exactly is a signature loan? Signature loans lend their name to the fact that only a signature is securing the loan. You are simply making a promise to your lender that you will pay back the money that owe them. In this regard, your lender is putting a large amount of faith in your ability to keep your promise. But there are also some other features that indicate if something is a signature loan. We will explore these in more detail below:

Unsecured

The primary feature is that these loans are unsecured. You don’t have to offer up any collateral to obtain the loan. If you do default on the loan, your lender has no right to come and claim any of your possessions to pay back the debt. This is great for people who don’t want to put their family’s wellbeing at risk. It is important to remember that there are repercussions for defaulting – your credit score will be severely damaged, which results in it being hard to obtain finance in the future.

Term

Just like all personal loans, signature loans are term loans, which means that they follow a set payment structure throughout the life of the loan. You will pay back your loan using monthly payments – there is typically a fixed interest rate. Many people prefer this as it allows them to escape debt quicker than with credit cards.

No Purpose Necessary

Unlike a mortgage, signature loans will not require you to have a purpose for the loan. You will not have to prove that you used the funds for a specific purpose. It is entirely up to you how you end up using the loan – although we must suggest you use it responsibly.

Changing Borrower Landscape

Signature loans used to be the hallmark of people with less than perfect credit scores. Many individuals who needed to get access to capital quickly, but didn’t have great credit ratings, would typically turn to signature loans to try and get some financing. This is also largely due to the fact that signature loans aren’t secured against an asset, which meant that people who didn’t have strong financial positions could still be approved.

This meant that signature loans had a bit of a bad reputation. They were often seen as a lending product reserved for those with poor financial health. They also tended to have extremely high interest rates, which indicated that the loan was not a great deal for borrowers. But times have changed – signature loans are now acquired by a range of different borrowers. You now see people of all backgrounds applying for signature loans and being approved.

This is largely down to a couple of different reasons. Firstly, interest rates are extremely low, which has meant that lenders have been able to provide their borrowers with lower interest rates even when risk is quite high. Secondly, people have begun to realize the value of not securing a loan – it doesn’t carry the same level of risk.

Advantages of Signature Loans

As you can see, there are quite a few benefits to getting a signature loan. But it can often be hard to make a decision without a clear list of benefits and drawbacks in front of you. This list of advantages has been created to help you get a better idea of what you can expect from signature loans. Check it out below:

  • Unsecured – As mentioned previously, the major benefit of a signature loan is that it is unsecured, you won’t have to worry about getting assets seized of frozen because you haven’t met your financial obligations.
  • Widely Available – You can get signature loans from a wide variety of sources. There are literally hundreds of lenders that offer this form of finance to borrowers. You won’t have a shortage of choices.
  • Quick – These forms of loans are typically super quick. You can finish an application in as little as ten minutes and receive a reply in just moments. If you are approved, you can often get money in your account in less than a day.
  • Access to Cash – Unlike credit cards or other forms of finance, signature loans will allow you to have access to cash without having to pay extra fees for cash advances – this is great for those who need cash instead of card facilities.

Disadvantages of Signature Loans

While there are plenty of benefits to getting signature loans, there are also some obvious drawbacks. It’s important to consider these when trying to decide if this is the right type of loan for you. These disadvantages are explored in more detail below.

  • High Interest – When compared to secured loans, signature loans have extremely high interest rates. You don’t want to end up paying back more money than you need to if you don’t have to. Regardless, people may still think that it is worth it to have a signature loan because it doesn’t put their other assets at risk.
  • Harder than Secured Loans – While signature loans are still fairly easy to get, they are still harder to get than secured loans, as they typically have higher risk for the lender. If you want to get a loan without risking rejection, you’re often better getting a secured loan.
  • Credit Score Impact Interest – The worse your credit score is, the higher your interest rate will be. This means that people with extremely bad scores might not be able to afford the interest rate associated with this form of finance.

Types of Lenders that Offer Signature Loans

There are various types of lenders that offer signature loans. In the past, signature loans were offered by traditional banks and lenders that had physical locations. But many of these lenders have decided to cut back on the amount of signature loans that they offer – many of them have seen it as too risky of an investment.

For this reason, signature loans are now offered mainly by online lenders. These lenders are often new entrants to the market – they provide all their services exclusively through their online platforms. They’re actually much easier to use than traditional lenders, their application process is much shorter. You will also find that these lenders have a much wider variety of borrowers that they give money to. Since there are many lenders in the industry, many of them compete heavily for your signature – they will tend to offer you very competitive interest rates.

Just make sure that you cross reference any suggestions about online lenders with a consumer watchdog group. You should always be looking to research any finance company that you’re thinking of working with. Because there are many new online lenders in the market place, you want to make sure that you don’t get sucked into working with a fraudulent company.

Your Credit Doesn’t Have to Be Perfect

While unsecured loans typically have a higher credit score requirement than secured ones, this doesn’t mean that your credit has to be perfect. You’ll find that many lenders are willing to offer signature loans to people who don’t have perfect credit scores. You should always research the lender to determine what type of credit score they are looking for. Many lenders will post this information on their website – if not, contact them and ask them for a general range.

If you still find that you’re out of this range, you can do a few things to improve your credit score. Check out your options below:

Credit Repair

Credit repair companies are extremely good at getting your credit improved in a short amount of time. They can often get items removed from your credit report, which will have a drastic impact on your ability to raise your credit score. Many more people than you think have mistakes on their credit reports – these credit repair companies will assess your credit report and determine if there are any errors.

But they don’t have to be glaring mistakes for them to be removable. There are also plenty of instances where credit repair companies successfully remove items by finding technicalities that null and void the issue on your report.

You are allowed to do credit repair on your own. You can ask the credit reporting bodies to remove items if you can prove they are not valid. But don’t expect the process to be easy – it’s much quicker to use a credit repair company that has the resources and expertise to stand up to the large reporting bodies.

Pay Off Your Credit Cards

Credit card debt is one of the major contributors to your credit score. The more of your limit you’re using, the worse your score will be. Fortunately, this part of your score is only tracked on a month by month basis, which means that if you improve your credit card balances, you’ll see improvement the following month. Your score does not factor in past balances, it only considers the most recent stated balance.

If you have some money to pay off your credit card debt, this is one of the quickest ways to see natural improvement in your score. We understand that many people might not be able to do this, but if you are able to, it’s most definitely worth it.

Verdict

Signature loans are an awesome choice for people who are looking to borrow money without taking on too much personal risk. While interest rates are typically quite high, this is significantly outweighed by the fact that none of your property can be seized in the case of a default. Regardless, you need to be able to make sure that you will be able to afford the repayments. Ask for a full breakdown of the cost of the loan from your lender prior to making any agreements.

We understand how hard it might be to determine which lender you want to work with. That’s why we help our readers by providing a constantly updated list of lenders to work with. If you head to our homepage, you will be able to find additional resources on which lenders we recommend. This is a great starting point – it can provide you with the necessary tools to get off on the right foot.

Borrowing money has a stigma attached to it, but it can be a force for good if it’s used in the right way. Make sure all lending decisions you make are done with care. You don’t want to end up taking on debt for no reason. Remember, if you need more information on personal loans and what they can do for you, make sure to check out some of the other resources we have posted on our site.

FAQ

Signature Loan Basics

Here you’ll find essential information when taking out a signature loan

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What is a signature loan?

A signature loan is a type of personal loan which only uses your signature and promises to pay as collateral.

What is a typical example of a signature loan?

Taking out a few thousand dollars with no collateral to pay off unexpected emergency medical bills.

What can I use a signature loan for?

Signature loans can be used for things like large purchases, emergencies, medical bills, home repairs, and other short-term financial emergencies.

What are signature loans best used for?

Signature loans are best used for short-term emergencies, such as medical problems, or expensive purchases you need to make but can’t afford.

How hard is it to get a signature loan?

Getting a signature loan is more difficult than getting other loans since there’s no collateral, but it’s easy enough if you have good credit.

How to get a signature loan?

You can get a signature loan from most banks or finance companies, having a high credit score will make it far easier to get a signature loan, but you can still get one if you have a low credit score, it’ll just be harder and most likely have higher interest rates.

What types of lenders give signature loans?

Many banks and finance companies will offer signature loans.

How to get approved for a signature loan?

To get a signature loan approved you’ll want to have a fair credit score, a proof of permanent address, little to no existing debt, and a sustainable income high enough to pay off the loan with interest. 

How much money can I get on a signature loan?

Signature loans typically range from $500-$500,000. Though it’s hard to get large amounts of money from a signature loan unless your credit score is high.

When will I know I’ve been approved for a signature loan?

You’ll receive word from your bank or financing company when the loan has been approved.

How does a signature loan work?

When you take out a signature loan you simply sign a document saying that you’ll pay back the money owed, then you’ll have to pay back the money at some point (When depends on the specifics of the loan) with interest.

How many years for a signature loan?

The specifics of how long you’ll have to pay off a signature loan depend on the source you’re taking out the loan from, though you can expect a timeframe of 1-5 years.

Who offers the best signature loans?

It’s usually best to get your loans from a trusted bank. You can also try looking for reviews online on where to get the best signature loan based on your current situation.

How long does it take to get a signature loan?

Typically, a signature loan will take 3-4 business days to get approved, but this process can be longer or shorter depending on your credit score.

Where can I get a signature loan?

You can get a signature loan from most banks or finance companies.

What do you need for a signature loan?

You don’t technically need anything for a signature loan, but having a high credit score will make getting a signature loan easier and will most likely result in lower interest rates.

What are the benefits of a signature loan?

A signature loan doesn’t need anything put down for collateral, and paying them off helps raise your credit score and prove that you’re trustworthy to banks.

Types of Signature Loans

Learn more about classifying signature loans, along with the different varieties of signature loans.

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What does signature loan mean?

A signature loan is a loan with no assets placed as collateral, rather it is based on the borrower’s good faith and signature.

What type of loan is a signature loan?

A signature loan is a type of personal loan.

What is a closed loan signature loan?

A closed loan signature loan is a signature loan with preset times when payments must be made and amounts that must be paid.

How to categorize signature loan?

Signature loans are a type of personal loan.

What is a personal signature loan?

A personal signature loan is a signature loan taken out by yourself with no collateral.

What is a signature student loan?

Signature student loans are loans used to pay for higher education with no collateral but a signature promising to pay off the loans.

How to consolidate signature student loans?

Signature student loans can usually be consolidated through someone at your school or through services online.

How soon do you have to pay back school signature loan?

Typically, school loans will have a 6-month grace period before you need to begin making payments, though this can be longer or shorter depending on the terms of your investment.

What is an unsecured signature loan?

An unsecured loan is a loan taken out with no collateral but the loan takers word, because of this most signature loans are also unsecured loans.

What is a closed-end signature loan?

A closed-end signature loan is a signature loan which has to be paid off in set intervals of a certain amount by a certain time. They are less advantageous to borrowers as the terms are typically non-negotiable once they’re set but paying off a closed end signature loan is good for your credit score.

What is the difference between a signature loan and line of credit?

A signature loan is a set amount of money that you’re borrowing whereas a line of credit sets a maximum amount of money you can borrow and then later repay whatever was spent up to that maximum.

What is a term signature loan?

A term signature loan is a signature loan which needs to be paid off at set intervals.

What is a secured loan vs. signature loan?

A secured loan requires you setting some asset such as your home or car for collateral, meaning that you’ll lose it if you default on too many payments. A signature loan only needs your signature, but typically requires a higher credit score and has higher interest rates.

What is an open-end signature loan?

An open-end signature loan is a signature loan where the borrower has far more flexibility on when to make payments, though most people won’t give an open-end loan to someone unless they have good credit.

What is the difference in signature loan and term signature loan?

A term signature loan is a signature loan that needs to be paid in a certain amount of terms.

What are the limits on a signature loan?

Signature loans typically don’t go any higher than $500,000, and they’re harder to get than loans with collateral on them.

Credit and Signature Loans

Find out how your credit score affects your ability to get a signature loan, and how signature loans affect your credit score

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What credit score is needed for a signature loan?

You can get a signature loan with any credit score, but having a higher credit score will make the process easier and result in lower interest rates.

How to get a signature loan with bad credit?

It is still possible to get a signature loan with bad credit, it’ll just be more difficult and will most likely result in higher interest rates.

How do signature loans affect credit?

Taking out a signature loan can boost your credit score significantly if you get your payments in on time, but missing too many payments on a signature loan will cause your credit score to take a big hit.

How to get a small signature loan with poor credit?

Getting a small signature loan with poor credit is harder than getting one with good credit, but it should still be doable, albeit with higher interest rates.

What are the risks of a default signature loan coming back on you as judgment?

As long as you make all your payments on time taking out a signature loan shouldn’t have any negative effects on you or your credit score, but failing to make several payments could make you look untrustworthy to lenders.

What are the credit criteria for signature loans?

Usually, banks will be looking for fair to high credit scores to ensure that you’re trustworthy enough to take out a loan with no collateral, though getting a signature loan with a low credit score is possible as well.

What are the consequences of a signature loan?

There are no consequences of a signature loan as long as you make your payments on time. Though failing to make payments can result in massive hits to your credit score.

How long to pay a signature loan to build credit?

You could take out a signature loan for $1000 to be paid off over 12 months, successfully paying off the loan would build credit, but signature loans aren’t the best for boosting credit.

Interest and Signature Loans

Learn everything related to the pricing and interest rates on signature loans.

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What is the interest rate on a signature loan?

The interest rates on signature loans could be anywhere from 25% to 4% depending on how good or bad your credit score is.

How to default on a signature loan?

There are no assets put down on a signature loan, meaning that you won’t immediately lose anything for defaulting on a signature loan. However, your credit score will take an enormous hit, and if it goes on too long, then you could be forced to file for bankruptcy.

How much are signature loan rates?

Depending on your credit score the interest rates for a personal loan can be anywhere from 5% to 25%

What is the longest term I can get for a signature loan?

10 years is usually going to be the longest term you can get to pay back a signature loan.

How much is the interest on a signature loan if paid in full?

The interest rates on a signature loan are anywhere from 5% to 25% depending on your credit score and trustworthiness.

How to figure out what my interest rate is on a signature loan?

You can talk with your bank or finance company about the interest rates, or use an online tool to estimate interest rates.

What happens when you don't pay a signature loan?

Failing to pay a signature loan can cause great damage to your credit score, and the source of your loan may choose to take legal action if you miss too many payments.

What happens if you pay a signature loan late?

Being late on too many signature loan payments can result in massive hits to your credit score, and could even lead to legal action being taken against you if too many are missed.

What can I do if I cannot pay my signature loan?

If you’re having trouble paying off a signature loan, then you should consider closing unnecessary credit accounts and making sure to budget the money to make payments.

How long after opening a signature loan can I file bankruptcy?

You should be able to file bankruptcy at any time after taking out a signature loan.

How to cancel a signature loan?

You can cancel a signature loan while it’s still in the process of being accepted by talking to whoever you submitted the loan request to, but after you’ve received the money from a signature loan, there’s no canceling it.

What happens if a person defaults on a signature loan?

Defaulting on a signature loan will result in significant losses to your credit score since there are no assets to take.

What is the annual percentage rate for a signature loan?

It can range anywhere from 5% to 25%, sometimes lower or higher.