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.
Getting approved for a signature loan will likely depend on your creditworthiness. 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?
Since signature loans are unsecured, lenders evaluate you based on your ability to repay. They’ll likely look at your credit score, credit history and debt-to-income ratio when deciding whether to approve or deny your application for a signature loan.
If you’re approved for a signature loan, you’ll receive the loan in a lump sum, and repay 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.
For example, if you’re approved for a two-year, $10,000 signature loan at a 12% APR, you’ll make monthly payments of $471 for the duration of the loan. It’ll cost $1,298 in interest.
Most financial experts agree an affordable signature loan has a maximum APR of 36%.
What’s a signature loan used for?
A signature loan can be used for almost anything, from paying for an emergency car repair to funding a vacation. We recommend using a signature loan only to 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.
Other uses for a signature loan include funding a home improvement project – ideally one that increases the value of the home – or refinancing an existing personal loan at a lower rate.
Where to get a signature loan
You can get a signature loan from an online lender, bank or credit union. These loans may be called unsecured personal loans, but they’re the same thing.
Online lenders offer unsecured personal loans ranging from $1,000 to $100,000 for borrowers with bad to excellent credit. Those with limited or spotty credit histories may find more options with online lenders, but rates can be higher compared with banks or credit unions. You can apply for these loans online, and they’re 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 (689 FICO or lower), credit union loans may have especially low rates and flexible terms compared with other lenders. You’ll need to become a member of the credit union before applying.
How to apply for a signature loan
Before applying for a signature loan, you’ll want to shop around to ensure you’re getting the most affordable loan possible, which is typically the one with the lowest annual percentage rate.
Prequalifying is one of the best ways to do this and includes filling out a short preliminary application, then submitting it for a soft credit check, which won't hurt your credit score. Then, the lender displays the rates and terms you may be eligible for.
Prequalifying with more than one lender is in your best interest, since there’s no risk to your credit score, and you’ll get to compare more options.
After selecting the best offer, you’re ready to submit the application. Applications vary by lender, but most will ask for personal details like your name, Social Security number, and contact information, and details about the loan you want, like the loan amount, loan purpose and desired repayment term.
Once you submit the application, the lender will conduct a hard credit check, which will 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.
Once you’re approved, you could receive the funds as early as the same day or within one week, depending on the lender.