What Is a Signature Loan, and Should You Use One?

No Collateral Required

Man using a stylus to place signature on loan documents on a pad.

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When you need extra cash, a signature loan may be the answer. These loans provide funds you can use for almost anything, including debt consolidation, home improvements, major purchases, and more. They’re relatively quick and easy to apply for, and you typically pay off your debt within a few years.

What is a Signature Loan?

A signature loan is a loan that you qualify for based on your credit scores and income. Signature loans do not require collateral to secure the loan, making them different from auto loans, home loans, and other secured loans. As a result, signature loans are also known as unsecured loans because the lender has nothing more than your word (your signature on an agreement) that you’ll repay.

Sometimes, lenders use the term “character loan” or “good faith” loan. No matter what the name, these are personal unsecured loans, and lenders don’t lend based on your character—they evaluate creditworthiness.

How Signature Loans Work

When you borrow with a signature loan, you typically receive a lump sum that you can spend on virtually anything. These loans are usually one-time loans, so you apply for all the money you need at once. To borrow more, you need to apply for another loan or use a revolving line of credit.

Payment term

You typically pay off signature loans over one to five years, but other terms are available. If you want to pay off debt quickly, look for lenders that do not charge prepayment penalties.

Borrowing process

  1. Apply for the loan by providing personal details and information about your finances. Your lender will review your credit scores or other information necessary to approve the loan.
  2. Receive funds in a lump sum, typically deposited to your bank account. Some lenders charge an origination fee that reduces the amount you receive, so account for those fees before you apply.
  3. Repay the loan with monthly installment payments. In many cases, you pay the same amount every month (although you can pay extra). However, some lenders use variable rates, so your monthly payment may change over time.

Interest Rates

The rate you pay primarily depends on your credit. With high credit scores, you may pay a rate in the single-digits. But with less-than-perfect credit, signature loans can be as expensive as credit cards. For example, some lenders charge rates around 30% APR.

See how your credit score and interest rate impact your monthly payment for a loan, using our personal loan calculator.

Amount Available

Because there is no physical asset to secure a signature loan, the amount you can borrow may be relatively small. For example, home loans can be hundreds of thousands of dollars, but the property (ideally worth more than the loan amount) secures the loan. With signature loans, your credit, income, and other factors determine how much you can borrow. A history of successfully borrowing and repaying should enable you to borrow more. But new borrowers (or those with negative items in their credit reports) may be limited to smaller loans.


If you don’t have sufficient credit or income to get approved for a signature loan, you have several options:

  1. Ask a cosigner to apply for the loan with you. The co-signer promises to repay, so they’re 100% responsible if you can’t make payments for any reason.
  2. Pledge collateral and use a secured loan instead. Collateral can include vehicles, valuables, assets in bank or investment accounts, and more.
  3. Build credit by borrowing and repaying. Over time, your credit scores will improve, and you’re more likely to get approved in the future. Unfortunately, the process may take several years.

Types of Signature Loans

Any unsecured personal loan is a signature loan. Although lenders market a variety of loans for specific uses, you’re still borrowing without collateral based on your credit and income.

Standard personal loans: Banks and credit unions have a long history of offering personal loans, and it’s worth checking rates and fees with a bank in your area. Credit unions often use the term “signature loan,” while banks use other names.

Peer-to-peer (P2P) loans: Online lenders provide funds from a variety of sources. Your loan may come from individuals with extra cash to lend or investors hoping to lend to borrowers like you. The application process for P2P loans is often streamlined and mobile-friendly, and lenders might use “alternative” credit information like your rent and utility payments.

Debt consolidation loans: If you have high-rate debt but you can qualify for a lower-cost signature loan, you may be able to save money—and eliminate debt faster. You can borrow enough to pay off those debts, stop using credit cards (or whatever caused the debt), and pay down the balance with fixed monthly payments.

Wedding loans: Some lenders specialize in funding weddings and other events, but it may be wise to start your life together without debt.

Medical loans: Doctors and clinics may offer funding for treatment through affiliated lenders. Those loans are available for everything from dental work to fertility treatment.

Payday loans: Payday loans are also unsecured loans because lenders have no physical asset to take possession of if you don’t repay. It’s usually best to avoid payday loans.

Installment loans: Again, this is another name for a personal loan that you pay off with fixed monthly payments over time. Money stores and payday lenders increasingly use the term installment loan, and they tend to have higher financing costs than traditional or online lenders.

Whatever your needs are, a signature loan may help. Compare offers from several sources, including online lenders and traditional banks or credit unions. Evaluate the interest rate you pay, fees required to fund the loan, and prepayment penalties before you choose a lender.

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Article Sources

  1. Prosper. "Disclosures," Accessed Oct.16, 2019