Signature loans are a type of personal loan that don’t require collateral to get approved. They can be used for just about anything, and with most lenders, you’ll get the funds quickly. However, there are some downsides of these loans to be aware of when comparing your options.
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What is a signature loan?
A signature loan is a type of unsecured personal loan. This means you do not need to have assets used as collateral to get the loan. Instead, the loan is backed by just your signature, which is your legal promise to repay the loan funds. Signature loan amounts can range from $500 to $50,000.
Typically, these loans have higher interest rates due to there being no collateral the lender can seize if you don’t repay the loan. However, they can be used for just about anything—travel, cars, home improvements—since it’s a type of personal loan, so flexibility is often a greater advantage.
Related: Secured vs. Unsecured Personal Loans
How does a signature loan work?
After you apply for a signature loan, the lender will look at factors such as your credit score, credit history, and income to determine your eligibility. They will also calculate your interest rate based on these factors and decide what loan amount you qualify for.
Once you’re approved and you accept the loan terms and conditions, the lender will send you the loan funds, either via a paper check or direct deposit in your bank account. You’ll then repay the loan through monthly installments over a set period, typically between 12 to 84 months.
What can you use a signature loan for?
Because a signature loan is a type of personal loan, it can be used for just about anything. However, the best use cases depend on your personal situation. For example, a signature loan can be used for:
- Consolidating debt: If you have multiple high-interest debts, such as credit card debt, you can use a signature loan as a debt consolidation loan. This means you’d pay off your existing debt with the new loan, and then that would be all you need to pay. If the signature loan has a lower interest rate or better terms, this can save you money and help you pay off the loan faster.
- Unplanned expenses or emergencies: Medical emergencies, unexpected car repairs, or urgent home repairs are all examples of what a signature loan can be used for. If you don’t have enough in your savings or emergency funds to take care of the expense, a signature loan can be an option.
- Home renovations, a wedding, a vacation, or other life event: Signature loan funds can be used for expensive life events, but it’s important to remember this is a type of debt and you’ll be paying interest, so you should only borrow what you can afford to repay.
Related: Types of Personal Loans
How to get a signature loan?
The steps to get a signature loan include:
1. Check your credit score. The first step in getting any loan is to review your credit score and credit report. Be sure the information is accurate and complete, and your score is high enough to qualify you for lower interest rates. You can order a copy of your credit report from each of the three major credit bureaus (Experian, Equifax, and TransUnion) for free once a year at annualcreditreport.com.
The interest rate you will get from a lender depends on various factors, including your credit score, the loan amount, the loan term, and the type of loan you are applying for. In general, borrowers with good credit scores (above 700) tend to qualify for lower interest rates.
2. Compare your options. Do research on the lenders available. Find ones that offer loan terms and amounts you’re looking for and that you qualify for with your credit score. Also compare interest rates and customer service reviews. Here are a few places where you can read reviews of loan lenders:
- Consumer Financial Protection Bureau (CFPB): The CFPB maintains a public database of consumer complaints related to financial products and services, including loans. You can search for complaints about specific lenders and read about other people’s experiences.
- Better Business Bureau (BBB): The BBB is a nonprofit organization that collects and provides business reviews, ratings, and complaints from customers. You can search for lenders and see their BBB ratings and customer reviews.
- Google Reviews: You can search for the lender’s name on Google and read reviews left by their customers. Keep in mind that these reviews may not be verified and could be biased.
- Trustpilot: Trustpilot is a consumer review website that collects and displays reviews of businesses. You can search for lenders and read reviews from their customers.
- LendingTree: LendingTree is an online lending marketplace that allows customers to compare loans from different lenders. You can read reviews of lenders on their website.
It’s always a good idea to read multiple reviews from different sources to get a comprehensive understanding of a lender’s reputation.
3. Get prequalified. Where possible, get prequalified. This only triggers a soft credit check so it doesn’t affect your credit score, but it gives you a more personalized estimate of the loan amount, monthly payments, and interest rate you’d qualify for, and it can help you compare your options more accurately.
4. Apply. Once you find the best lender, submit a formal loan application. This can most often be done online in just a few minutes. You’ll be asked to provide personal information and documentation proving things like income.
5. Sign loan agreement. After your application is approved, you’ll have to review and sign the loan agreement. Read the terms and conditions carefully.
6. Receive funds. When the loan agreement is signed, the lender will deposit the funds into your bank account, typically within one to two business days.
7. Repay the loan. You must start repaying your loan right away, so get automatic payments set up so you don’t miss any. Late or missed payments could result in fees or penalties, and damage to your credit score.
Where to get signature loans?
Signature loans are typically offered at the same places as any other type of personal loan, including banks, credit unions, and online lenders.
Who are signature loans best for?
Signature loans are good for borrowers who need an easy loan with a fast approval and funding process. Because they are a type of unsecured loan, you don’t need to have any assets – like a car, house, or bank accounts – to offer as collateral. However, it’s still best to have a great credit score and history; otherwise, you’ll face high interest rates.
Signature loans are also good for borrowers who want a fixed, predictable monthly payment. You’ll know exactly when each payment is due and what the amount is, making it easier to budget and calculate the final payoff date.
When should I get a signature loan?
You should get a signature loan if:
- Your credit score and history are great to excellent (670+), making you eligible for lower interest rates.
- You have enough income to cover your monthly payments, avoiding late payment fees or defaulting on the loan.
- You’ve considered all your financing options.
- You’ve compared lenders to find one that’s best for you.
Pros and cons of signature loans
|Unsecured (no collateral)||High interest rates with bad credit|
|Lower interest rates with excellent credit||Can lower credit score|
|Can help build credit||Smaller loan amounts|
What to look out for with signature loans?
The biggest thing to look out for with signature loans is the interest rate. Borrowers with great to excellent credit will qualify for better rates and more favorable terms, but borrowers with lower scores may be offered interest rates of 30% or more. It’s important to improve your credit score if you can before applying for a signature loan to increase the likelihood that you’ll get a lower interest rate.
Besides interest rates, you’ll also want to look out for fees. Some lenders charge origination fees, early payoff fees, late payment fees, or other penalties, so be sure to read all the loan documents and understand the loan conditions before choosing a lender. Origination fees are usually between 1% and 8% of the total loan amount, early payoff fees are on average the equivalent of 1-2 months’ interest for the loan and late fees fall in the range of $25 to $50.
Can I get a signature loan with bad credit?
It’s possible to get a signature loan if you have bad credit, but it’s going to be more difficult to find a lender who will approve your application. If your application is approved, you’ll likely have much higher interest rates, even up to 30% or higher.
While signature loans are unsecured, meaning you don’t need collateral to get approved, you may need a cosigner who will agree to pay off the loan if you can’t. A co-signer is a person who agrees to take on ownership of the debt an individual borrows if that person is no longer capable of paying. This co-signer does not gain access to any funds from the loan. Essentially, a co-signer agrees to give their name and credit history as support for the person trying to borrow the loan.
Pros and cons of signature loans for bad credit
|Fast funding||More difficult to get approved|
|No collateral required||High interest rates|
|Can help build credit||May need a cosigner|
How to qualify for a signature loan?
A great to excellent credit score, at least 670 or higher, is required in order to get the lowest interest rates. The higher your score, the lower your rate. You’ll likely also need to prove a steady income and have a solid credit history.
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How do I compare signature loan lenders?
When figuring out which lender is best for you, there are several factors to compare including:
Borrowers with lower credit scores may be charged higher interest rates, but it varies from lender to lender.
One of the benefits of choosing a signature loan is that you can choose a loan term. It usually ranges between one and seven years.
Many lenders don’t do smaller loans under $600, so you may need a different option.
Check the origination fees and any monthly charges you’ll incur during the life of the loan. Use those as a comparison point between lenders.
Note that longer terms mean smaller monthly payments, but it also means you’ll accrue more in interest. Shorter terms have higher monthly payments but you’ll owe less over time. Also compare the loan’s minimum requirements, like minimum credit score or income.
If you can, get prequalified for the loan online. This doesn’t affect your credit score, but gives you a more unique estimate of the loan amount, term, APR, and monthly payment you’d qualify for.
Compare: Best Personal Loans in 2022
How do I apply for a signature loan?
Once you’ve chosen the lender and calculated the loan amount you need, fill out the application either online or in person. Most online applications only take a few minutes. You will need the following documentation in physical or digital format:
Valid State Driver’s
License or State ID
Proof of current
Valid checking account
for direct debits
W2 or 1099
The lender will also run a credit check. This will result in a “hard inquiry” on your credit report that might drop your credit score by a few points. Taking out the loan could also have this effect, but your score will most likely increase if you make all your monthly payments on time.
Signature loans are a type of personal loan. The primary difference is that personal loans can be either secured or unsecured, while signature loans are always unsecured. Signature loans may also have lower loan amounts due to them being unsecured. Signature loans are usually between $500 to $50,000 but they often are closer to the lower part of that range.
Technically yes, there are no credit check signature loans. There are some lenders who offer no credit check signature loans. The lenders that offer these may consider other factors, such as the borrower’s income and employment history, to determine their eligibility for the loan. However, these loans typically come with higher interest rates and fees to offset the risk that the lender is taking on.
Signature loan amounts can range from $500 to $50,000. Usually lenders require a credit score of at least 650 to qualify for a $50,000 loan, but some lenders may require a higher score of 700 or above.
You can have more than one personal loan with some lenders, or multiple personal loans from different lenders. While there’s technically not a limit, some lenders only allow you to have up to three loans with the same lender. Keep in mind that the more loans you have, the more your credit score and history are affected, and it may be more difficult to qualify for loans in the future.
The application and funding process for signature loans can be quick, especially if you work with an online lender. Many online lenders will approve the loan within the same business day, and you’ll receive the funds the next business day.
Yes, a signature loan can help build credit if you’re making the monthly payments on time. Late or missed payments can decrease your score, as well as defaulting on the loan. While your score will decrease a few points at first due to the credit inquiry and taking on additional debt, repaying the loan will help your score rebound.