Signature Loans Provide Funds that You Can Use for Anything

Last Updated on February 1, 2022 by pf team

Signature loans offer a flexible way to borrow money for nearly any purpose. Online lending has made it easier than ever to get a signature loan, but this type of borrowing has its pros and cons.

Here's what you'll need to know about signature loans before you sign the dotted line.

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What is a signature loan?

A signature loan is a type of personal loan that doesn’t use collateral. Instead, the borrower’s signature represents a promise to pay. This type of unsecured loan is also called a good faith loan or a character loan.

Signature loans pros and cons

A signature loan may or may not be the right choice for some situations. Here are some pros and cons to consider before getting a signature loan.


  • Fast approval means you can often get your loan funded in just days.
  • Signature loans can be used for nearly any purpose.
  • You can often qualify even with bad credit.
  • Interest rates are often lower than credit cards.
  • Fixed interest rates make payments predictable.
  • Repayment terms can be several years.
  • Signature loans are unsecured, so the lender won’t repossess anything if you miss a payment or two.


  • Interest rates are often higher than with secured loans.
  • Origination fees can be costly. 
  • Some signature loans have a penalty for early repayment.
  • Monthly payments may be higher than with credit cards.
  • Late payment fees can be costly.
  • Late payments or defaults impact your credit score.
  • The lender can get a court judgement if you default on the loan.

How do signature loans work?

Because signature loans don’t use collateral, your credit history plays a big role in how the loan is structured. Your credit score can influence the amount you can borrow, the length of the loan, and the interest rate.

Amounts available

While the amount you can borrow with a signature loan ranges from $1000 up to $50,000 or more, both your credit history and your income play a role in determining how much you can borrow.

Borrowers with higher credit scores may be approved for larger amounts, whereas borrowers with lower credit scores may be seen as higher risks.

Your debt-to-income ratio can also affect the amount you qualify to borrow.

Fixed repayment term

Unlike credit cards, signature loans use a fixed repayment term. Repayment terms commonly range from 1 year to 5 years. However, some lenders offer longer terms, with some even offering 12-year loans.

Expect your credit score to affect the length of your loan. Longer terms may only be available to borrowers with higher credit scores.

Interest rates

Your credit score also affects the interest rate for your loan. Borrowers with excellent credit can qualify for rates between 10 and 13%, although some may earn lower rates.

Rates for average credit can approach 20% and rates can exceed 20% for borrowers with a troubled credit history.

How to get a signature loan

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Getting a signature loan is often a quick process, but there are some steps to take before you apply. Just as importantly, take the time you need to understand the fine print for the loan.

While applying is a quick process, don’t let the whirlwind speed get you caught up in a loan that’s not right for you.

  • Compare loans and offers carefully. Don’t assume all loans are the same. Interest rates, terms, and fees can vary, so take your time in choosing the right loan. Remember, you may have your loan for several years. Choose the loan term and offer that fits your long-term needs.
  • Gather your documents. For most loans, you’ll need some key documents or numbers to proceed with the loan. Try to have the following documents handy: 
    • 2 years of tax returns
    • Paystubs or other proof of income
    • Documents for other loans, including monthly payments and remaining balances
    • Credit card statements
    • Bank statements
    • Education loan statements
  • Apply for a loan – but don’t rush to apply. Read the terms and conditions carefully. If the loan doesn’t look right based on fees or for some other reason, you can still shop around.
  • Receive the loan. Once you’ve been approved for a signature loan, the loan is often funded within 1-2 days. Often, lenders can deposit the loan funds directly into your bank account.
  • Repay the loan. In many cases, you can earn a better rate if you sign up for automatic monthly payments. Whether you make manual payments or automatic payments, be sure to keep enough money in your account to cover the payment. An underfunded bank account can lead to an assortment of fees and create financial havoc that affects more than just your signature loan.

How to get approved if you don't have enough credit or income

Because signature loans are unsecured, your credit history and income play a large role in how much you can borrow or whether you qualify at all.

There’s a lender out there for people with just about any credit score, but interest rates or other fees can make the loan costly. It may be better to consider your other options.

  • Build your credit score. If you have some time before you’ll need a loan, you can take steps to improve your credit score. As a first step, look for any incorrect entries on your credit report. You can request your 3-bureau credit report for free once each year at The next thing to target is your credit utilization, which can make up 30% of your credit score. If you can, pay down some balances to reduce the percentage of your available credit used.
  • Pledge collateral. When you pledge collateral, you’re borrowing with a secured loan instead of an unsecured loan. Whatever collateral you pledge is at risk if you default on the loan. Lenders may consider vehicles, bank accounts, investment accounts, and more as collateral for your loan. However, whether a lender accepts collateral is at the lender’s discretion.
  • Use a cosigner. A cosigner is someone who promises to pay if you can’t make payments on your loan. Using a cosigner who has a stronger credit or earnings history makes the loan less risky for the lender. However, using a cosigner can create financial risk for whoever cosigns your loan. If you don’t pay, the cosigner becomes responsible. Their credit score is at risk as well as their money. Consider your other options including borrowing a lesser amount before asking someone to cosign your loan.

Types of signature loans

  • Personal loans: With a personal loan, you can use the money you borrow for nearly any purpose. Some people have even used personal loans to purchase real estate.
  • Debt consolidation loans: If you have credit card debt or other types of debt and want to combine the loans, a debt consolidation loan can be a powerful tool. Many times, the interest rates are much lower than with credit cards. However, you’ll lose the flexibility you have to pay smaller amounts toward credit card balances. Signature loans have fixed payment amounts for a fixed term.
  • Medical loans: A medical loan is just a signature loan used for medical payments. The loan is unsecured and has a fixed payment amount for an agreed amount of time. Deductibles and other out-of-pocket costs can add up quickly when there’s an injury or an illness. A medical loan can cover these costs with a fixed rate and a term of 2-3 years or longer. Some lenders specialize in medical loans.
  • P2P loans: Many peer-to-peer (P2P) loans are also signature loans. Rather than using a commercial lender, your loan is funded by investors who lend to other people.
  • Payday loans: Although often grouped together, payday loans differ from other types of signature loans. While both types of loans are unsecured, payday loans are high-cost short-term loans. Signature loans, on the other hand, are fixed-rate personal loans with repayment terms of 1 year up to several years.

Fees associated with signature loans

Signature loans often have lower interest rates when compared to credit cards. However, fees can add to the cost of borrowing with a signature loan.

When choosing any type of loan, it’s always best to compare the Annual Percentage Rate (APR) rather than the interest rate. The APR is a more inclusive figure that includes other costs of borrowing.

  • Origination fees: Not all signature loan lenders charge an origination fee, but many do and it’s important to understand how origination fees work for personal loans. The most common structure for an origination fee is a deduction from the funded loan amount. For example, if you borrow $20,000 and your loan has a 5% origination fee, your funded amount may only be $19,000. However, you'll still owe $20,000 on the loan balance. In effect, the lender rolled the fee into the loan balance. You'll have to pay interest on the entire balance, including the origination fee, for the remaining term of the loan. Choose your loan carefully. Origination fees can be costly.
  • Early payoff fees: If you shop around, you should be able to find a lender that doesn't charge a prepayment penalty. this fee applies if you pay off your loan before the term is complete. Be sure to read the fine print before accepting a loan offer. 
  • Late payment fees: For most borrowers, origination fees and early payoff fees are easy to avoid by choosing a loan that doesn't have these fees. However, late payment fees apply to nearly every loan and can be costly. Some lenders charge a fixed dollar amount as a late fee. Others may charge a percentage. Rules regarding late fees can also vary by state.

What if you can't pay back your signature loan?

Before applying for a signature loan, it’s important to consider what can go wrong. Even though a signature loan is unsecured, there’s still risk for borrowers.

If you default on payments, the lender can take you to court. If the court finds in the lender's favor, your assets and future earnings can still be at risk.

The court can garnish your salary

In some cases, the court can order your employer to withhold some of your earnings to repay the lender. Rules vary by state and some states offer more consumer protection than others. In some states, wage garnishments can be as high as 25% of your disposable income.

The court can place a lien on your home 

If you own your home, the court can also place a lien on your home. This doesn’t mean the lender can take your home, but some of the equity is pledged to the lender if you sell. It's also possible that your name will continue to accrue interest.

The court can order a levy against your bank account

A court can also permit a bank levy, which is a claim against your bank balance – and future deposits. Bank levies can set off a chain reaction of fees, bounced checks, and missed payments.

Signature loans FAQ

loan application approved
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How can I get a signature loan?

The fastest way to get a signature loan is often through an online lender. Most lenders will use your credit history and income to determine how much you can borrow as well as the interest rate for the loan.

What can I use a signature loan for?

Signature loans can be used for nearly any purpose. Emergencies and medical expenses are among the most common uses, but signature loans can also be used for debt consolidation or large purchases.

Is it hard to get a signature loan when you have other loans?

Many lenders consider your debt-to-income ratio, which speaks to how much of your income goes to debt service.

Other debt can reduce the amount you’re able to borrow with a signature loan but won't necessarily make you ineligible for a signature loan.

How do you get approved for a signature loan?

Each lender has its own approval criteria. If you apply for a signature loan, expect the lender to check your credit score and to require proof of income.

In some cases, you may need a cosigner to get approved for larger loan amounts if your income or credit score aren't high enough to support a larger loan amount.

How long does it take to get a signature loan?

The process of funding a personal loan can take 1 day up to several weeks, depending on the lender, the loan amount, or your documentation.

Many online lenders can find a signature loan within 24 to 48 hours, and some lenders can fund a loan on the same day that it's approved. 

What credit score is needed for a signature loan?

You'll find the most options for signature loans if your credit score is 600 or higher. Signature loans are available for lower credit scores as well. However, interest rates are usually higher for lower credit scores.

Can you get signature loans with no credit check?

Most signature loans require a credit check. However, you can get a payday loan without a credit check.

Instead, payday lenders consider your ability to repay the loan based on your employment. Some lenders also consider alternative data when evaluating eligibility for a signature loan.

Can you get signature loans with bad credit?

Signature loans may be available for those with bad credit, although you should expect higher interest rates if your credit score needs improvement.

Can you get a signature loan with a bankruptcy?

Signature loans may be available even after a bankruptcy. However, interest rates will probably be higher for signature loans and other types of credit until you've had time to rebuild your credit score.

Do signature loans hurt your credit?

Signature loans can impact your credit in multiple ways. Any request for new credit – including signature loans – can cause your credit score to drop temporarily.

Your debt to income ratio is also affected. Of course, the timeliness of your loan payments affects your credit as well. 

Bottom line on signature loans

Signature loans aren't the right tool for every financial situation but in some circumstances, a signature loan makes a more attractive option than credit cards or other high-interest borrowing.

In fact, credit card debt consolidation is one of the most common uses for signature loans. Unexpected emergency expenses and medical expenses are also common reasons people choose to borrow with a signature loan. 

As with any financial product, be sure you understand the terms before you sign the bottom line. In the end, you’ll want the right signature loan to solve a short-term need. Choosing hastily might create more challenges later.

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