What’s a signature loan and what does it include?
Learn about signature loans and how, when and if to use them.
A signature loan — sometimes known as a “good faith loan” or “character loan” — is a fixed-rate personal loan backed by the borrower’s signature as the promise to pay. Banks and financial companies offer signature loans if they deem the borrower has enough income and a good credit history. The interest rates on this type of loan are typically higher than other forms of credit due to the lack of collateral. Learn more about signature loans and when you might consider using one.
What to know about signature loans.
- Who uses signature loans and why? Historically, people with low credit scores tended to take out signature loans. However, with lower interest rates and higher loan maximums, many people with good credit are also starting to take out signature loans, for anything from home improvements to unexpected expenses. This type of loan can also be a great way to consolidate and pay off debt if you qualify for a signature loan with a lower APR than your combined debts.
- Am I eligible for one? Since signature loans are considered “unsecured,” with your signature being the only collateral, lenders want to ensure your ability to repay. They’ll examine your credit score, history, and debt-to-income ratio before approving your application.
- How does payment work? You’ll receive the loan all at once, and then repay it in monthly installments over a set repayment term. Note that these loans come with a fixed annual percentage rate, which includes interest and fees, meaning your payments won’t change over time — but those payments will include interest.
Make sure you talk with legal counsel before making any financial decisions about signature loans.
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