What Is a Signature Loan?

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According to Investopedia, a signature loan is a personal loan that does not require collateral to secure, typically issued by a bank or other financial institution. The loan is issued based on the customer's signature on the loan papers and his word that the loan is to be repaid. Because the loan is unsecured, it is also sometimes called a character loan or good faith loan.

Investopedia also notes that because there is no collateral required, the interest rates on a signature loan are often higher than other types of bank loans. GreenPath notes that signature loans are obtained for a variety of reasons from home improvement to debt consolidation. Signature loans generally have a fixed interest rate for the life of the loan and a fixed repayment schedule.

GreenPath also reports that the interest rates and available loan amounts for consumers vary depending on the lending institution and on the signatory's credit score and income. Signature loans are taken out by an individual or with a co-borrower or co-signer. If a signature loan is taken out with a co-borrower or co-signer, that person is legally obligated to make the scheduled payments on the loan if the primary borrower fails to pay.