The Ultimate Guide to Signature Loans

If you’re shopping for a no-collateral loan, a signature loan may be your best bet. While you can easily qualify for this loan type, it may not be the best option.

As with any other financial product, signature loans have downsides. So, before applying for it, it’s crucial to understand how they work to determine if it’s the best funding option for your needs.

Table of Content

• What Is a Signature Loan?
• How Does a Signature Loan Work?
• Personal vs. Signature Loan
• Signature Loan vs. Revolving Credit
• Can You Get a Signature Loan With Bad Credit?
• Signature Loan Use Cases
• Advantages and Disadvantages of Signature Loans
• How To Apply for a Signature Loan
• Is a Signature Loan Right for Me?

What Is a Signature Loan?

A signature loan is a loan that doesn’t need collateral. Your signature guarantees the borrowed amount. Also called a “good faith loan,” you can use a signature loan for any purpose. However, they typically have high interest rates as they’re unsecured.

How Does a Signature Loan Work?

Like any other loan, lenders will evaluate your eligibility by looking at your credit history, credit score, and income. You’ll get an estimated loan amount and interest rate based on these aspects.

Once approved, you’ll receive the loan directly to your bank account or a check. You’ll then be required to make regular payments, typically in monthly installments, until the loan is fully repaid.

Sometimes, your lender may ask you to have a co-signer in case you default on your monthly payments.

Personal vs. Signature Loan

A signature loan is a type of unsecured personal loan, meaning you don’t have to put up collateral to qualify. On the other hand, a personal loan can either require collateral or not.

Signature Loan vs. Revolving Credit

Unlike a signature loan, where you receive a lump sum of cash, a revolving credit account gives you access to a set amount of money up to a specific credit limit. You can draw as much as little on a needed basis and pay interest on the borrowed amount.

Can You Get a Signature Loan With Bad Credit?

Getting a signature loan with bad credit is possible, but it may be more expensive than if you had good credit. Plus, you may end up paying higher rates.

However, you may need a cosigner because you appear a risky borrower in the eyes of lenders. A co-signer is a person who takes full responsibility if you default on your payments. It can be anyone with a good credit history.

Signature Loan Use Cases

Here are a few scenarios taking on this type of loan may be worth it:

Debt Consolidation

You can take a signature loan to offset an existing expensive debt. Combining multiple high-interest debts into a single loan can save you a lot of cash on interest. You can also get other favorable terms, such as lower monthly payments and extended repayment periods.

Major Life Events

Whether you’re getting married, having a baby, or want to move to another city due to work, these major life events can be expensive. A signature loan can help you fund such expenses as it’s easy to qualify for.

Emergencies and Major Purchases

Life can throw emergencies our way that require quick access to cash. A signature loan can be useful if you need money now to cover sudden expenses like medical bills or urgent car repairs.

Advantages and Disadvantages of Signature Loans

Like any other loan, signature loans have upsides and downsides. Weighing the pros and cons can help you decide whether it’s the right choice.

Pros

• You don’t need collateral: Because signature loans are unsecured, you don’t have to worry about giving up your asset to secure the loan.
• Fast access to cash: Since these loans don’t require any collateral, you can get the funding within one business day, provided that you meet the lender’s requirements.
• You can use it for various purposes: You can use a signature loan for almost anything, as unsecured loans vs. many secured loans give you more flexibility.
• Cheaper than credit cards: While signature loans have higher interest rates than secured loans, they’re cheaper.

Cons

• High interest rates: Signature loans typically carry high interest rates because they don’t require collateral.
• Origination fee: Some lenders may charge origination fees and other costs, such as late payment fees, which can increase your borrowing cost.

How To Apply for a Signature Loan

If you think a signature loan is the best funding option, here’s how to apply for one:

1. Review your credit report: Check your credit score before applying for a signature loan. If your credit score is decent, you’ll appear a less risky borrower in the eyes of lenders. Plus, you’ll likely get better rates. If your credit score is too low, find ways to improve it and build credit fast before submitting your application.

2. Gather all documents: You’ll need to provide your personal information, including your pay stubs, past tax returns, and bank statements. The documents you’ll need will vary by lender. When you provide all the paperwork your lender requires, you speed up your loan application process.

3. Compare multiple lenders: It’s always wise to compare lenders to ensure you get the best possible rates. You can prequalify several lenders and choose one with the best rates and terms.

4. Submit your loan application: Once you settle on a lender, you can submit your loan application and await approval. However, before you sign on the dotted line, read the fine print of the loan terms and fees.

5. Receive funds and repay the borrowed amount: Your lender will disburse the funds within a few working days. As soon as you receive the funds, consider setting automatic payments to avoid late payment fees. Late loan repayments could also hurt your score, making it hard to take out future loans.

Is a Signature Loan Right for Me?

If you require fast access to cash and don’t want to risk your car or house, a signature loan may be a good funding option. However, before submitting your loan application, ensure you have good credit and enough income to make monthly payments.

Take the first step towards financial flexibility and apply for a signature loan todayApply