For many people, loans come attached to a certain collateral; examples of these include an auto loan or a mortgage. There are also loan options that are not backed by collateral; these are called signature loans.
Here’s what you should know about signature loans, what they’re for and how to get them.
What is a signature loan?
A signature loan is a type of unsecured loan, which means there is no collateral involved. This is different from a secured loan, such as an auto loan, which would be backed by a purchased vehicle.
Signature loans are also known as “good-faith loans” or, simply, personal loans. They only require a borrower to sign a promissory note to receive loan funds. The borrower agrees to repay the loan over a set amount of time with a predetermined interest rate.
Common uses for a signature loans
- Debt consolidation: If a person wants to pay off multiple credit cards, a signature loan can be an ideal solution as it will provide enough funding to pay down the cards while only having one fixed interest rate instead of several.
- Emergency funds: An emergency can happen at any time and result in a desperate need for fast money. A signature loan can help in this situation.
- Other large expenses: Homeowners may take out an unsecured loan to take care of home repairs or improvements that doesn’t involve using their home as collateral. One example of this type of loan is a home equity loan. Or, parents may sometimes sign for a loan to help pay for their child’s school expenses without taking out additional student loans. Additionally, couples looking to pay for a large wedding may also want to borrow funds for it with a signature loan.
Should you get a signature loan?
As the case with any type of debt, individuals need to make sure that going into debt is worth the trouble.
“When considering a signature loan, it is always best to take into account whether or not the loan fits into your budget,” said Leslie H. Tayne, founder of Tayne Law Group P.C. and author of “Life & Debt.”
Going through your finances is a vital first step in determining whether a signature loan is right for you. You may also wish to speak to a financial advisor who can help you decide whether or not a signature loan is right for you.
Save money while repaying debt. Getting a signature loan to pay off credit cards can be a big money saver. You can use a signature loan with a fixed rate to combine the debt you have across multiple credit cards. Doing so could allow you to pay off your debt with a lower interest rate and a longer or shorter repayment term.
Quick funds. If an emergency happens, a signature loan could be a lifesaver. There’s no way to determine when a crisis can happen, and being able to borrow a large sum of money could make a big difference.
“Signature loans usually can be taken out very quickly, potentially with lower interest rates than credit cards, dependent on the borrower’s history,” said Ray Sturm, CEO of AlphaFlow. “That speed can make them convenient when an unexpected, larger expense pops up, or if credit card bills need to be consolidated. ”
Negative impact on credit. Applying for a signature loan will likely require a person to have their credit report pulled. This pull will cause a small drop in their credit score, but it will only last for a couple of months. Along with that dip, if they don’t get approved for the signature loan, it can give off a bad impression when trying to apply for another loan. Lenders could view multiple applications as a sign of financial instability.
Higher interest rate. Signature loans, as the name implies, need only a signature to take out the loan. With no collateral attached to the loan, the financial institution takes on more risk. More risk means the bank may require a higher interest rate on the loan.
“A disadvantage can be the interest rate depending upon your personal situation,” said David Bakke, a personal finance expert at Money Crashers. “They’ll be rather high, but probably less than that of other loan options, such as a payday loan.”
The signature loan may have a more favorable rate than a credit card, but it will still have a higher rate than a car or mortgage. If the loan is used for a luxury expense like paying for a vacation or a wedding, it’s a matter of determining whether the additional interest is worth having the funds made available right away.
May be hard to qualify for. Since signature loans don’t require collateral, they can be harder to qualify for. Lenders may require a higher minimum credit score requirement than with a secured loan. Your income and outstanding debts may also be considered.
How to get a signature loan
Obtaining a signature loan is not much different than getting any other loan:
Research lenders: It’s often easy to find lenders locally. Your local bank or credit union may be a convenient option if you’re looking for a signature loan. However, you should also seek out online lenders. They may offer more competitive rates and terms.
As you find potential lenders, consider factors like customer ratings, the rates being offered, and what fees they may charge you.
Get preapproval offers: Many lenders allow you to apply for preapproval with a soft credit check. Doing so allows you to see what rates you may qualify for without harming your credit score. You can often apply for preapproval on a lender’s website. However, some lenders may take applications by phone or by mail.
Compare offers: Once you have preapproval offers, you can better determine which lender is your best option. You’ll need to decide for yourself what you’re looking for in a signature loan. You may consider, for example:
- Flexible repayment terms
- Low or no fees
- Interest rates
Select your offer: Once you’ve decided on a lender, you’ll submit to a hard credit check to complete your application. If the lender approves your application, you’ll receive your finalized loan details and instructions on how to receive your loan funds.
3 lenders offering signature loans
Want to jump-start your search for a loan? You may consider these online lenders:
LightStream is the online consumer lending division of SunTrust Bank. It focuses on providing fixed-rate loans, whether it be for a car, boat or signature loan. Like other online lenders, LightStream’s services are designed for those applying for signature loans by offering competitive rates, specialized customer service and other extras to earn your business over that of a conventional bank or credit union.
LightStream offers myriad signature loans to cover multiple occasions, such as debt consolidation, weddings and even funding for an adoption. LightStream loans have fixed rates and come with a program called the Rate Beat program, in which the company will provide a lower rate than a competitor would on a similar loan.
RocketLoans is a sister company to Quicken Loans and Rocket Mortgage. RocketLoans focuses solely on signature loans and offers a secure online platform for applications. You can receive loan funds the same day you apply. Even better, RocketLoans comes with no hidden fees.
Payoff is another online lender specializing in debt consolidation loans based out of Costa Mesa, Calif. It’s a private company that is not an arm of another financial institution. Payoff focuses more on borrowers looking to consolidate credit card debt. It offers a fast application process and is upfront about what it looks for from borrowers.
Before making the decision to apply for a signature loan or any type of personal loan, it is important to assess your financial situation and research all your options.
Interested in a personal loan?Here are the top personal loan lenders of 2019!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.95% to 35.89%*. The origination fee ranges from 1% to 6% of the original principal balance and is deducted from your loan proceeds. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at the time of application. The average origination fee is 5.49% as of Q1 2017. In Georgia, the minimum loan amount is $3,025. In Massachusetts, the minimum loan amount is $6,025 if your APR is greater than 12%. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months. Borrower must be a U.S. citizen, permanent resident or be in the United States on a valid long term visa and at least 18 years old. Valid bank account and Social Security number are required. Equal Housing Lender. All loans are subject to credit approval. LendingClub’s physical address is: LendingClub, 71 Stevenson Street, Suite 1000, San Francisco, CA 94105.
†Per reviews collected and authenticated by Bazaarvoice in compliance with the Bazaarvoice Authentication Requirements, supported by anti-fraud technology and human analysis. All reviews can be reviewed at reviews.lendingclub.com
**Based on approximately 60% of borrowers who received offers through LendingClub’s marketing partners between January 1, 2018 to July 20,2018. The time it will take to fund your loan may vary.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|5.74% – 16.99%1||$5,000 - $100,000|
|7.54% – 35.99%||$1,000 - $50,000|
|7.99% – 35.89%*||$1,000 - $50,000|
|5.99% – 24.99%2||$5,000 - $35,000|
|5.99% – 29.99%3||$7,500 - $40,000|
|6.79% – 20.89%4||$5,000 - $50,000|
|9.99% – 35.99%5||$2,000 - $25,000|
|6.95% – 35.89%6||$1,000 - $40,000|
|6.99% – 18.24%7||$5,000 - $75,000|
|9.95% – 35.99%8||$2,000 - $35,000|