One popular type of personal loan is known as a signature loan, although in certain areas, it is called either a character loan or a good faith loan. All the names allude to the fact that it’s a loan without any collateral on it. Instead, you’re signing a contract stating that you’ll repay the loan. If you get a signature loan online, you may be able to e-sign the contract.
Applying for a signature loan requires the same information you’d need to apply for most other personal loans. You’ll need to provide the lender with your basic information, including your name, date of birth, address and phone number. The lender will also most likely want some financial information, such as your job, how long you’ve been employed there, and your monthly or yearly income.
The lender will run a credit check on you as part of the application process. The two most significant factors in whether a lender approves you are your credit score and your income, as both indicate how likely you are to repay the loan. Your credit score can also affect the annual percentage rate (APR) the lender sets for your loan.
If you don’t have a high-enough credit score to meet the lender’s minimum requirements, you may be able to apply with a co-signer. The co-signer signs a contract stating that they’ll be responsible for paying the loan should you default.
A Type of Unsecured Term Loan
Because of how a signature loan works, it falls into the category of unsecured term loans. Unsecured simply refers to a loan without any collateral attached. Secured loans, in contrast, have a piece of property attached as collateral, which the lender can repossess in the event of a default. Mortgages are one popular example of a secured loan, since the lender can repossess the home if necessary.
A term loan is a loan that lasts for a predetermined period of time. You make payments every due date, and these payments typically occur monthly, although other payment schedules are sometimes available. The lender provides you with your loan amount in a lump sum upfront, and to get more money, you’d need to apply for another loan. The other options are credit cards and lines of credit. With each of those, you can spend up to your credit limit at any time, and if you pay down the balance on your account, you’ll increase your available credit.
What Can You Use a Signature Loan For?
When it comes to how you can use a signature loan, you’ll have plenty of options available, and it will really come down to how you want to use the loan.
Since a signature loan is a personal loan, you can put it towards whatever you want. This makes it far more versatile than most other types of loans. For example, if you get a mortgage, you can only put it towards the house you’re purchasing. It’s the same with an auto loan and a business loan. There are no such restrictions with personal loans.
How do most people use their signature loans? The most common use of a signature loan is for a large expense that the borrower doesn’t have the money to pay upfront. This could be a sudden emergency, such as a repair after a car breakdown or hospital bills from an unexpected illness. Or it could be an expense the borrower knew about, such as a vacation or a home improvement project.
Borrowers will, on occasion, use signature loans for debt consolidation. This means that they’re obtaining a signature loan at a lower interest rate than their other debt, paying off that debt all at once with the signature loan, and then paying off the loan. Debt consolidation is common with credit card debt, since credit cards frequently have higher APRs than loans.
Let’s say that you have a total of $8,000 in debt, spread out across three credit cards which all have APRs above 18 percent. If you can get a signature loan at a 9 percent APR, you’ll cut the amount of interest you pay in half.
Signature Loans Through the Years
Signature loans used to be the type of loan that you only applied for if you had a bad credit score that ruled out any other options. That is far from the case today, though. Not only have APRs gone down on signature loans, to the point where they can be very competitive with other loan options, but the maximum amounts have gone up. The result is more high-income borrowers with good credit scores deciding to go the signature loan route.
If you want a signature loan, the good news is that they aren’t particularly challenging to find. They’re available through many finance companies and select banks. There are also quite a few online signature loan companies out there.
Performing a search for signature loan will likely bring up plenty of results. If you’re near a city, there should be local options where you can go. Otherwise, online lenders are an option no matter where you are, and they are usually very convenient.