Table of Contents
- When Cash Flow is Tight
- Key Takeaways
- What Is a Signature Loan?
- How a Signature Loan Works
- Signature Loan vs. Revolving Credit
- Examples of Signature Loans
- How Are Signature Loans Different From Personal Loans?
- Who Are Signature Loans Typically Good for?
- How Much Do People Borrow With a Signature Loan?
- The Bottom Line
When Cash Flow is Tight
If your cash flow is tight, you might consider various personal loans as solutions. Among them, signature loans stand out with the best terms—they only need your signature as collateral and often come with more attractive rates than other unsecured debts. Let me walk you through the details of signature loans so you can decide if one fits your needs.
Key Takeaways
A signature loan depends entirely on your signature and your promise to repay as the only form of collateral. You'll find that interest rates here are generally higher than those for secured credit because there's no physical backing. Lenders will approve you for a signature loan if they see you have enough income and a strong credit history.
What Is a Signature Loan?
You might hear a signature loan called a good faith loan or character loan. It's a personal loan from banks or finance companies that doesn't require any physical collateral like a car or house—just your signature and commitment to pay. You can use it for pretty much any purpose you choose. Expect higher interest rates due to the unsecured nature, but they could still beat out credit card rates in some cases.
How a Signature Loan Works
When a lender evaluates you for a signature loan, they check your credit history and income to ensure you can repay it. Sometimes, they'll ask for a co-signer, who only steps in if you default. These are unsecured term loans, meaning no collateral backs them, and you pay them off in equal monthly installments over a set period—unlike secured loans like mortgages or auto loans.
Signature Loan vs. Revolving Credit
Applying for regular or revolving credit often involves delays as the lender reviews your credit and qualifications. With a signature loan, funds hit your account faster, letting you address your financial needs sooner. Once you pay off a signature loan, the account closes, and you'd need to apply again for more funds. Revolving credit, on the other hand, lets you repay and reuse the line until you or the lender decide to close it.
Examples of Signature Loans
You can apply signature loans to things like home improvements, unexpected costs, medical bills, vacations, or other big expenses. Many people use them to consolidate debts too. For instance, if you're carrying credit card balances at 12% to 20% interest, a signature loan at 7% could pay them off, saving you money on the same debt amount. Adding a co-signer can help if your credit is limited or your income is low. If you're eyeing one, try a personal loan calculator to estimate your monthly payments and total interest based on what you plan to borrow.
How Are Signature Loans Different From Personal Loans?
Signature loans fall under the personal loan category, but they're distinct because they're unsecured, backed only by your signature and promise to pay—no other collateral required.
Who Are Signature Loans Typically Good for?
If you have good credit, you're a prime candidate for a signature loan since it shows you've paid debts reliably and pose low default risk. Even with poor credit, you might qualify with a co-signer. Some options skip credit checks altogether, but those are usually payday loans with sky-high rates.
How Much Do People Borrow With a Signature Loan?
Amounts can start at $500 and reach up to $50,000, but remember, not every bank or credit union provides these loans.
The Bottom Line
Signature loans are personal loans that only require your promise to pay as collateral. They used to be common for those with poor credit, but now they're mostly for people with better scores. Keep in mind, not all banks offer them, and their interest rates are higher than secured loans.
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