# Signature Loan: Meaning, Overview, and Examples

![Borrower holding a pen to sign a loan agreement in order to get approved for a signature loan.](https://www.investopedia.com/thmb/SGun5Zk6vLn4BFc2hc4igdVWYzI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/SignatureLoanMeaningOverviewandExamples-536631f3b9d2436d9fb7245a6534f9e9.jpg)

*— PhotoAlto/Dinoco Greco / Getty Images*

When cash flow is tight, several different types of personal loans offer a possible solution. Signature loans offer the best [terms](https://www.investopedia.com/loan-terms-5075341)—they only require your signature as collateral and typically offer more attractive rates than other types of unsecured debt.

Explore the ins and outs of signature loans and decide if one is right for you.

### Key Takeaways

*   A signature loan uses the borrower’s signature and promises to pay as the sole collateral for receiving the loan.
*   Interest rates on signature loans are generally higher than other forms of credit due to the lack of collateral.
*   Lenders grant signature loans if they deem the borrower has enough income and a good credit history.

## What Is a Signature Loan?

A signature loan, also known as a “good faith loan” or [character loan](https://www.investopedia.com/terms/c/character-loan.asp), is a type of personal loan offered by banks and other finance companies that only requires the borrower’s signature and a promise to pay rather than physical [collateral](https://www.investopedia.com/terms/c/collateral.asp) such as a car title or a home. A signature loan can typically be used for any purpose that the borrower chooses. [Interest rates](https://www.investopedia.com/terms/i/interestrate.asp) may be higher than other forms of credit due to the lack of collateral, but may be lower than other forms of unsecured credit such as credit cards.

## How a Signature Loan Works

To determine whether to grant a signature loan, a lender typically looks for a solid [credit history](https://www.investopedia.com/terms/c/credit-history.asp) and sufficient [income](https://www.investopedia.com/terms/i/income.asp) to repay the loan. In some cases, the lender [may require a co-signer on the loan](https://www.investopedia.com/articles/personal-finance/082115/what-are-cosigners-liable-responsible.asp), but the co-signer is only called upon in the event that the original lender [defaults](https://www.investopedia.com/terms/d/default2.asp) on payments.

Signature loans are one type of [unsecured term loan](https://www.investopedia.com/terms/u/unsecuredloan.asp). “Unsecured” refers to the fact that these loans are not secured by any form of physical collateral, unlike home mortgages and car loans. “Term” means the loan is [amortized](https://www.investopedia.com/terms/a/amortization.asp) over a predetermined time period and paid off in equal monthly installments.

## Signature Loan vs. Revolving Credit

Applications for regular credit or revolving credit loans normally trigger a funding delay while the banking institution or loan company examines the borrower’s credit history and checks personal qualifications. [By contrast, the funds obtained through signature loans](https://www.investopedia.com/articles/personal-finance/041415/pros-cons-personal-loans-vs-credit-cards.asp) are deposited in the borrower’s account more quickly, allowing earlier allocation to financial needs.

As soon as a signature loan is paid off, the account is closed, and the borrower needs to apply for a new loan if they require additional funds. In contrast, a [revolving credit](https://www.investopedia.com/terms/r/revolvingcredit.asp) account allows the indebted party to repay the loan and maintain the line of credit until the borrower or lender chooses to end the relationship and close the account.

## Examples of Signature Loans

Borrowers use signature loans for a range of purposes, including [home improvement](https://www.investopedia.com/the-best-personal-loans-8761582), [unexpected expenses](https://www.investopedia.com/emergency-loans-for-bad-credit-5075539), medical bills, vacations, and other large expenditures. Some borrowers also use signature loans to consolidate other debts.

> **Important**
>
> Adding a co-signer on a signature loan may help a borrower with a minimal credit history or a low income.

Let’s say a borrower gets a signature loan with a 7% interest rate for an amount equal to the total of balances that they are carrying on credit cards, with rates ranging from 12% to 20%. The borrower then uses the signature loan to pay off the credit cards in full. The borrower will realize distinct savings by repaying the same amount of money at 7% rather than at the former higher rates.

If you’re thinking about taking out a signature loan, then a [personal loan calculator](https://www.investopedia.com/personal-loan-calculator-5082130) could be useful for figuring out what the monthly payment and total [interest](https://www.investopedia.com/terms/i/interest.asp) should be for the amount you’re looking to borrow.

## How Are Signature Loans Different From Personal Loans?

A signature loan is a type of personal loan. It’s different from other kinds of personal loans because it’s unsecured. The only collateral is the borrower’s signature and a promise to pay.

## Who Are Signature Loans Typically Good for?

Borrowers with [good credit](https://www.investopedia.com/terms/g/good-credit.asp) are typically candidates for signature loans because they have established a record of paying [debts](https://www.investopedia.com/terms/d/debt.asp) and are a low risk for defaulting. People with [poor credit](https://www.investopedia.com/terms/b/bad-credit.asp) may still be able to secure a signature loan with the help of a co-signer. There are even some [signature loans that don’t require a credit check](https://www.investopedia.com/getting-signature-loan-with-no-credit-check-8684530), though these are often [payday loans](https://www.investopedia.com/terms/p/payday-loans.asp), which typically have exorbitantly high interest rates.

## How Much Do People Borrow With a Signature Loan?

They can start at as little as $500 and go up to $50,000. However, keep in mind that not all banks and credit unions offer signature loans.

## The Bottom Line

Signature loans are a type of personal loan requiring only a promise to pay as collateral. While in the past they were typically made to people with poor credit, today they are pretty much reserved for customers with better credit scores.

Remember that not all banks offer signature loans, and interest rates tend to be higher than with secured loans.  

> **Article Sources**
>
> 1.  Quicken Loans. “[What Is a Signature Loan, and How Does One Work?](https://www.quickenloans.com/learn/signature-loan)”
>     
> 2.  Corporate Finance Institute. “[Revolving Credit Facility](https://corporatefinanceinstitute.com/resources/knowledge/finance/revolving-credit-facility/).”
>     
> 3.  Experian. “[What Is a Signature Loan?](https://www.experian.com/blogs/ask-experian/what-is-a-signature-loan/)”