A signature loan is a type of personal loan that is unsecured, meaning it does not require collateral. Instead, the loan is backed by the borrowers signature, which represents a legal promise to repay the loan funds. Signature loans can be used for almost any purpose, and the funds can be received quickly, with some lenders issuing funds as soon as the same business day. Signature loans are one type of unsecured term loan, which means they are not secured by any form of physical collateral, unlike home mortgages and car loans.
When applying for a signature loan, lenders evaluate the borrower based on their ability to repay, which includes factors such as credit score, credit history, and debt-to-income ratio. If approved, the borrower receives the loan in a lump sum and repays it over a set repayment term, usually two to seven years, via monthly installments. Signature loans come with a fixed annual percentage rate, which includes interest and any fees, so the monthly payments won’t change over time.
It's important to note that a signature loan is not different from a personal loan, but rather one of many types of personal loans. However, interest rates on signature loans are generally higher than other forms of credit due to the lack of collateral.
