What Is a Signature Loan?

A signature loan is a fixed-rate, unsecured personal loan offered by an online lender, bank or credit union. It’s called a signature loan because it’s secured by your signature instead of collateral, like a car or an investment account.

Your creditworthiness plays a big factor in getting approved for a signature loan. The best way to use a signature loan is to improve your financial situation, such as by consolidating and paying off high-interest debts.

How Does a Signature Loan Work?

Lenders evaluate you based on your ability to repay since signature loans are unsecured. They look at your credit score, credit history and debt-to-income ratio when deciding to approve or deny your application for a signature loan.

If you are approved, you will get the loan in a lump sum and repay it over a set repayment term which is about two to seven years, and the payments are made monthly.

Signature loans come with a fixed annual percentage rate, which includes interest and any fees, so the monthly payments won’t change over time.

What Is a Signature Loan Used for?

Signature loans can be used for anything from paying for a car repair to funding a vacation. However, it is recommended that you use one to only cover a needed expense or to improve your overall finances.

One of the best ways to use a signature loan is to consolidate debt. If you can qualify for a signature loan with a lower APR than your combined debts, you could use the loan to pay off those debts, then make one simplified payment toward your new loan.

Since that loan has a lower interest rate, you’ll pay less in interest and likely have lower monthly payments. Use our debt consolidation calculator to see how an unsecured loan can help you pay off your debts.

Where to Get a Signature Loan

You can get a signature loan from an online lender, credit union, or bank. These are called unsecured personal loans too.

Online lenders offer unsecured personal loans ranging from $1,000 to $100,000 for borrowers with bad to excellent credit. If you have a limited credit history you are better off using an online lender, but the rates are higher compared with banks or credit unions. These loans can be applied online and often funded the same or next business day.

Not all banks offer unsecured personal loans, but those that do usually cater to borrowers with good to excellent credit (690 FICO or higher) with loans from $1,000 to $100,000. You may need to be a current customer to apply for a loan, and customers tend to see the most perks, like qualifying for a rate discount or getting access to higher loan amounts.

Credit unions also offer unsecured personal loans ranging from $250 to $50,000. If you have fair or bad credit, credit union loans may have especially low rates and flexible terms compared with other lenders. You will need to become a member of the credit union before applying.

How to Apply for a Signature Loan

The first thing you want to do is shop around to make sure that you are getting an affordable loan, one with low APR if possible before you apply for a signature loan.

Pre-qualifying is one of the best ways to do this and includes filling out a short preliminary application, then submitting to a soft credit check, which won't hurt your credit score. Then, the lender displays the rates and terms you may be eligible for.

Be sure to compare options because there is no risk to your credit score, and you can pre-qualify with more than one lender. Once you submit the application, the lender will conduct a hard credit check and temporarily lower your credit score by a few points. Many lenders’ application and approval processes are online, but some banks and credit unions may require you to visit a branch.