What is a Signature Loan?

Also known as a good faith or character loan, a signature loan is a type of unsecured personal credit offered by banks and credit unions.

It provides a fixed rate for a fixed term, usually between two and six years. It’s great for those who don’t want to or can’t put up collateral.

Reasons to Get a Signature Loan

A signature loan is an ideal option for anyone who needs a quick influx of cash and doesn’t want to bother with a complicated and lengthy application process.

This page walks you through all the possible reasons for applying for a signature personal loan. When you make up your mind, you can check our reviews of signature loans without a hard inquiry into your credit reports to help you choose the right option.

Debt consolidation is perhaps the most frequent rationale behind the decision to apply. This bundles multiple high-interest debts into a single low-interest rate signature loan.

Covering Emergencies

If you have a medical emergency, unforeseen repairs, or god forbid, have to pay for a loved one’s funeral, signature loans can come in handy.

Wedding Expenses

Using a signature loan can alleviate the pressure of having to come up with the money all at once and let you enjoy your special day.

Buying a Vehicle

If you’re looking to buy or lease a car, this type of loan might be a better option for you than auto loans.

Covering Legal Fees

This type of loan can also be useful if you find yourself in the middle of a bitter divorce, custody battle, or any kind of legal trouble.

For Travel Expenses

Many people opt for signature loans in order to finance their vacations.

For Business Purposes

Signature loans can be used for unexpected business expenses and opportunities.

If these reasons aren’t applicable in your case, you can always take a closer look at the other types of personal loans that you can opt for. These offers can sometimes be a better fit for your financial issues than signature loans.

How to Apply for an Unsecured Signature Loan

With your signature, any credit union or bank will be happy to lend you money, provided that you have something more to offer, be it a good credit score or sufficient income to repay the loan.

Lenders are taking a substantial amount of risk here because applicants don’t put up collateral. That’s why this loan is called unsecured.

The application process is remarkably straightforward. All you need to do is the following:

• Check the rates with as many lenders as possible and don’t avoid signature loans online lenders, which can offer even better terms. Before signing up, review the terms, including fees and interest rates. Don’t forget to read all documents to avoid unpleasant surprises. Of course, before you do anything, check your credit score and get a free credit report.
• Upon picking the lender, you’ll be required to provide some basic personal and financial information. The lender will use this info to determine your loan amount, interest rate, and any additional fees.
• Sign the loan agreement: Put your signature on the dotted line, and the money is yours.

A Signature Loan for Bad Credit

Your creditworthiness is an important factor when it comes to signature loans. If you have a bad credit score, getting your loan approved is slightly more complicated.

If you do get it despite your bad credit rating, you’ll end up with a much higher interest rate, or you’ll need a co-signer. Consider asking a good friend or a family member who has good credit to co-sign on the loan for you to get the approval.

Applicants with bad credit often wonder if there is some way around this. Regrettably, such offers don’t exist. But you’ll probably be eligible for a payday loan, for example.

However, be extremely cautious with such offers since they have numerous downsides. Exploring other types of loans designed for people with a low credit score is a much better option.

Make sure to check the fees if you have a low credit score. Offers vary by lender, but you’ll pay the double-digit range. Banks usually require a credit score of at least 660, in which case the average APR is around 24%. If your credit is anywhere between 680-719, it will drop to 18%.

A Closed-end Signature Loan

Congrats! If you are inquiring about these types loans, that means that your credit score is high! Once you apply for a closed-end signature loan, you’ll say yes to a fixed term and set monthly payments with a fixed interest rate.

When it comes to fees, you can follow our guidelines. The average APR will be somewhere between 10% and 13% throughout the life of a loan that can be up to 60 months.

Signature Loan vs. Line of Credit

Although there are similarities, those two types of loans work differently. With a bank or a credit union, you borrow a fixed amount of money and pay it back over a specified period. Also, the installments are fixed.

On the other hand, credit lines offer flexibility, let you borrow up to your maximum limit, and even borrow again if need be.

Both options have pros and cons. With signature loans, once you provide the bank with your signature, the mortgage won’t be necessary. And that’s awesome. On the flip side, if you default on your installments, the lender may file a lawsuit.