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What is a Signature Loan?

Understanding a Signature Loan

Signature Loan in contrast to. Revolving Credit

Exemples of Signature Loans

What do signature loans different than personal loans?

Who are Signature loans typically good for?

How much do people take out a signature loan?

The Bottom Line

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Signature Loan

By Julia Kagan

Updated January 05, 2023

Reviewed by Thomas Brock

What is a Signature Loan?

A signature loan often referred to a «good trust loan» also known as a «character loan,» is a kind of personal loan offered by banks and other finance companies which only requires the borrower’s signature and an agreement to pay collateral. A signature loan is usually utilized for whatever purpose the borrower chooses, although the interest rates may exceed other forms of credit due to the absence of collateral.

Important Takeaways

A signature loan uses the borrower’s signature and promises to pay as the sole collateral for the loan.

The rates of interest on signature loans are typically higher than other forms of credit due to the lack of collateral.

Lenders grant signature loans when they believe the borrower has enough income and a good credit history.

Understanding the need for a Signature Loan

To decide if it is appropriate to grant the sign-on loan, a lender typically is looking for a strong credit history and a sufficient income to repay the loan. In certain instances it is possible that the lender will require a cosigner on the loan, but the cosigner is only called upon in the event the original lender defaults on payment.

Signature loans are one type of term loan. Unsecured refers to the fact that they are loans don’t have the security of any form of physical collateral, in contrast to home mortgages and car loans. Term means the loan is paid back over a set period , and then paid back in equal monthly installments.

Signature Loan vs. Revolving Credit

Applications for regular credit or credit that is revolving loans normally trigger a funding delay as the banking institution or loan company examines the credit history of the applicant and scrutinizes personal credentials. In contrast, cash derived through signature loans are deposited in the account of the borrower faster and are able to be allocated earlier to financial requirements.

As soon as the signed loan is paid in full and the account closed, it is closed and the borrower has to apply for a fresh loan should they require more funds. A credit card that is revolving allows the debtor to pay back the loan and keep the credit line until the lender or borrower decides to stop the relationship and shut the account.

Some examples of Signature Loans

Signature loans to fund a variety of needs, such as house improvements as well as unexpected costs such as medical bills, vacations and many other major expenses. Certain borrowers also make use of signature loans to consolidate debts.

A cosigner for the signature loan could help a borrower with a minimal credit history or a low income.

Let’s say a borrower gets an official loan that has 7 percent interest in a amount equivalent to the total of balances they have on credit cards, with rates ranging from 12% to 20%. The borrower then uses his signature loan to pay off the credit card in full. The borrower will realize distinct savings by paying back the same amount at 7%, rather than the earlier higher rates.

If you’re thinking about taking out an individual signature loan, then a personal loan calculator might be useful to determine the amount of your monthly payment and total interest should be depending on the loan amount that 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 than other kinds of personal loans because it’s not secured. The only collateral required is the borrower’s signature and the promise to pay.

Who are the types of signature loans generally good for?

Borrowers with good credit are typically candidates for signature loans due to the fact that they have a record of paying the debts they owe and are at a lower risk of default.

How much can people take out a signature loan?

They could start just $500.2 Keep in mind that not all credit unions and banks are a part of the program.

The Bottom Line

A signature loans are a kind of personal loan requiring only a promise to pay as collateral. In the past, they were generally offered to those with low credit scores but today, they are much reserved for customers with better credit scores. Remember that not all banks offer signature loans and interest rates tend to be higher than secured loans.

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Personal Guide to Getting a Loan

Personal Loan: Definition, Types, and how to get one

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Understanding Different Loan Types

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Can personal loans be transferred to another person?

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How Personal Loans Affect Your Credit Score

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What is an amortization schedule? How do I Calculate It Using 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 Consolidation Loans to Condense Debt

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The Best Personal Loans with a Co-Signer

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Personal Loans are different from. Car Loans: What’s the Difference?

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Related Terms

Character Loan Defined

A character loan is an unsecured loan which is based on the credit and reputation of the borrower in contrast to an loan that is secured with a property.

more

Unsecured Loan

An unsecure loan doesn’t require any type of collateral, however to be approved for one you’ll require credit score that is good.

More

What is a loan, How Does It Work as well as the types and tips on Getting One

A loan is money, property or any other tangible goods given to another party in exchange for future repayment on the loan value, which includes interest.

More

What is the Equal Credit Opportunity Act (ECOA)? Purpose

The Equal Credit Opportunity Act (ECOA) is a federal civil rights law that prohibits lenders from denying credit to an applicant for any reason that is not related to the individual’s ability to pay back.

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Credit Score Credit Score: Definition, Factors and Improving It

Credit scores are a score from 300 to 850 that rates a consumer’s creditworthiness. The greater the score, the more favorable a borrower is to potential lenders.

more

Line of Credit (LOC) Definition Types, Definitions, and Examples

The term «line of credit» (LOC) can be described as an agreement between an institution and a client that establishes a preset borrowing limit that is used repeatedly.

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