Signature loans: Everything to know

A signature loan is a type of unsecured personal loan that doesn’t require any form of collateral. Sometimes called a good faith or character loan, you’ll need good credit to get the best rates and terms, along with enough income to make the payments (iStock)

If you're looking for a loan but don’t want to, or can’t, put up collateral, then a signature loan may be an option. Signature loans — also called good faith or character loans — are unsecured loans, which means you don't need collateral to apply. But to qualify, you’ll likely need a good credit history, stable employment and enough income to make the principal, plus interest payments.

If you're thinking about this option, consider using Credible. With Credible, you can compare personal loan rates from multiple lenders without affecting your credit score.

UNSECURED LOANS: EVERYTHING TO KNOW

What is a signature loan?

Signature loans are different from secured loans, which require you to put up some type of collateral, like your home or car, to qualify. With a secured loan, if you don’t make your payments, your lender can rescind the loan agreement and take your collateral. Like unsecured loans, signature loans are secured solely by your signature on the loan agreement. No collateral is needed.

You can use a signature loan for almost anything, like consolidating debt or to cover a medical emergency. Interest rates and terms vary from one lender to the next. Once you qualify, your lender will pay out your loan in one lump sum. Loan limits also vary but can range from a couple of hundred dollars to many thousands. But because they aren’t backed by collateral, loan amounts are often smaller than with secured loans.

What are the interest rates for signature loans?

Interest rates on signature loans are the same as with personal loans and depend on your credit score, credit history and ability to repay your loan. Signature loans are provided by banks, credit unions and many other financial institutions, including online lenders. If you have good credit, you will likely qualify for much better rates than borrowers with poor credit.

Generally, interest rates on signature loans range from about 5.5% to 24%, depending on your credit score, loan amount and term. To find out what rate you’ll qualify for on your signature loan, visit Credible today and use its p​ersonal loan calculator.​

WHAT IS A GOOD INTEREST RATE ON A PERSONAL LOAN?

What are other fees to watch out for?

Besides paying a higher interest rate (sometimes up to 30%), signature loans typically come with fees, although not always.


  • Origination fee: Some lenders charge an origination fee to process your new loan. Origination fees are shown as a percentage and taken out of your total loan amount. So if you take out a loan for $5,000 with a 2% origination fee, the amount you’ll receive will be $4,900 because of the $100 origination fee. 

  • Prepayment penalty: Lenders can charge a prepayment penalty if you pay off your loan before the end of the term. Most lenders don’t charge an early payoff fee but it’s worth looking for on your loan document. 

  • Late penalty fee: Many lenders charge a late penalty fee if you miss payments or make multiple late payments on your loan. Avoid making late payments, as it will negatively impact your credit report.

Some lenders offer signature loans to borrowers with poor credit with no credit check. However, interest rates are usually considerably higher and loan amounts are often much lower. That’s why it pays to shop around to find the best personal loan rates and visit Credible to talk with an experienced loan officer​ and get your personal loan questions answered.

WHAT TO DO BEFORE APPLYING FOR A PERSONAL LOAN

Will signature loans impact your credit score?

When you apply for any type of loan, including a signature loan, your credit score will take a temporary hit because you are taking on extra debt. But if you make all of your payments on time as per the loan agreement, your credit score might actually improve over time. That’s because your payment history makes up 35% of your FICO credit score.

How to get a signature loan 

To get the best rates and terms on your signature loan, it pays to shop around and compare rates and lenders by visiting Credible. Most lenders have a fairly straightforward application process, much the same as when applying for a personal loan. You can apply at your local bank or credit union, or find an online lender and fill out the application online.

You may want to consider prequalification, as you might get approved for your loan within minutes of applying. Although loan application requirements vary, you’ll likely need the following:

  • Valid ID
  • Social security number
  • Proof of income
  • Contact information
  • Citizenship status

Ready to explore all of your personal loan options? Visit Credible today to find the best rates and lenders without it impacting your credit score.

DO THESE 5 THINGS BEFORE CHOOSING A PERSONAL LOAN LENDER

Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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