What Is a Signature Loan?
Understanding a Signature Loan
Signature Loan is different from. Revolving Credit
Some examples of Signature Loans
What do signature loans different from personal loans?
Who are the types of signature loans typically good for?
How much do people take out a signature loan?
The Bottom Line

Personal Loans, Credit

Signature Loan
By Julia Kagan
Updated January 5, 2023.
Review by Thomas Brock
What is a Signature Loan?

A signature loan is also referred to as"good faith loan" or "good trust loan" or "character loan," is a type of personal loan that banks and other finance companies which only requires the signature of the borrower and an agreement to pay collateral. A signature loan can typically be used for any purpose the borrower decides to use it for, but the interest rates may exceed other types of credit due to the absence of collateral.
Important Takeaways

A signature loan uses the borrower's signature and guarantees to pay the sole collateral to receive the loan.
Interest rates on signature loans are typically higher than other types of credit because of the absence of collateral.
Signature loans when they believe the borrower has enough income and has a strong credit history.

Understanding the need for a Signature Loan

To determine whether to grant a signature loan the lender generally will look for a good credit score and sufficient earnings to pay back the loan. In some cases it is possible that the lender will require a cosigner for the loan however the cosigner can only be called upon in the event the original lender defaults on payments.

Signature loans are one type of unsecured term loan. Unsecured refers to the fact they do not have any collateral. loans don't have the security of any form of tangible collateral, as opposed to home mortgages and car loans. Term means the loan is to be amortized over a specified time period , and then paid back with equal installments each month.
Signature Loan in contrast to. Revolving Credit

Regular credit applications or credit that is revolving loans normally trigger a funding delay as the banking institution or loan company examines the credit history of the borrower and scrutinizes personal credentials. By contrast, the funds obtained through signature loans are deposited into the account of the borrower more quickly and are able to be allocated earlier to the financial requirements.

Once the Signature loan is paid back, the account is closed and the borrower is required to apply for a fresh loan in the event that they require additional funds. In contrast, a revolving credit account allows the person in debt to pay the loan and maintain the credit line until the borrower or lender chooses to end the relationship and shut the account.
Some examples of Signature Loans

Borrowers use signature loans for a range of needs, such as house improvements and unexpected expenses including medical bills, vacations, and other large expenditures. Certain borrowers also make use of Signature loans to consolidate debts.

Cosigning the signature loan can help a person who has a poor credit score or a low income.

Let's say a borrower gets an official loan that has a 7% interest rate for an amount equal to the balances that they are carrying on credit cards, with rates that range from 12% to 20%. The borrower uses his signature loan to pay off the credit cards in the full amount. The borrower will realize distinct savings by paying back the same amount at 7% rather than the earlier higher rates.

If you're contemplating signing an individual signature loan and you're not sure how to calculate it, a personal loan calculator can be helpful for figuring out what the monthly payment and total interest should be in relation to the sum you're hoping to borrow.
What are signature loans different from personal loans?

The signature loan is a form that is a personal loan. It's different from other kinds of personal loans because it's not secured. The only collateral is the signature of the borrower and a promise to pay.
Who do signature loans typically beneficial for?

Creditworthy borrowers tend to be eligible for signature loans because they have established a record of paying the debts they owe and are at a lower chance of default.
How much can people take out a signature loan?

They can start at just $500.2 Keep in mind that not all credit unions and banks are involved.
The Bottom Line

The signature loans are a kind of personal loan which requires just a promise to pay as collateral. While in the past they were generally offered to people with poor credit, today they are pretty mostly reserved for those with higher credit scores. Remember the fact that banks do not provide signature loans and they tend to have rates higher than with secured loans.
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Personal Loan Guide

Personal Loan: Definition, Types, and How to Get One
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Understanding Different Loan Types
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Unsecured Loan
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Signature Loan
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What Is Peer-to-Peer (P2P) Loans? What is its definition and how it works
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What Is a Payday Loan? How Does It Work, How to obtain One and the Lawfulness
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Can Personal Loans be tax-deductible?
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Are Personal Loans Considered Income?
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Can Personal Loans Be Included in Bankruptcy?
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Can Personal Loans Be Transferred to a different person?
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What effect do personal loans have on your Credit Score
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What is an Amortization Schedule? How to Calculate With Formula
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Personal Loan Interest Rates: How a Personal Loan is Calculated
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How to Apply for a Personal Loan
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Best Personal Loans
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Best Small Personal Loans
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Character Loan Defined
The term "character" loan is an unsecured loan which is based on the borrower's reputation and credit, in contrast to the loan that is secured with a home.
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Unsecured Loan
Unsecured loan does not require any kind of collateral, however to be approved for one you'll require credit score that is good.
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A loan is the term used to describe property, money or any other items given to a third party in exchange for future repayment of the loan value, which includes interest.
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The Equal Credit Opportunity Act (ECOA) is an American civil rights law that prohibits lenders from refusing credit to a person for any reason that is not related to the person's ability to pay back.
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Credit scores are a score between 300 and 850 that rates a consumer's creditworthiness. The more high the score, better the borrower's creditworthiness is assessed by potential lenders.
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The term "line of credit" (LOC) is an arrangement between an institution and a client that sets a fixed borrowing limit that can be used often.
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