Signature Personal Loans

A signature loan is an unsecured personal loan, meaning no collateral is required, only your John Hancock (plus a strong income and credit history). Keep reading to learn about signature loans, their pros and cons, and how to apply for one if you believe it’s the best financial product for your needs. 

Is a signature loan a personal loan?

A signature loan is a type of personal loan. It doesn’t require any collateral to secure, such as a house or a car. All that is needed is a strong credit profile, consistent income, and your signature—hence the title. While some types of personal loans require some form of collateral, signature loans are one of the few that don’t.

Signature loans work essentially the same as any other installment loan, meaning you make fixed monthly payments until the loan amount is paid in full. Monthly payments are usually the same day and are often set up as automatic payments. 

One thing to remember is that because signature loans are not secured, they often come with higher interest rates and fees. However, they’re often lower than the interest rates charged by credit card companies.

Because signature loans are a type of personal loan, the money can usually be used for just about anything. Potential uses include covering a financial emergency, consolidating debt, paying off medical bills, or renovating your home. The choice is yours.  

We typically recommend secured loans because of the more favorable interest rates and loan terms.

Michael Menninger

CFP®

Best signature personal loans

Exploring signature loans can mean overwhelming options, so we’ve done some of the legwork. Below, we’ve highlighted four impressive lenders, each earning a nod in its respective category based on our curated reviews.

Lender	Best for	Rates (APR)
Credible	Marketplace	7.49% – 35.99%
LightStream	Excellent credit	7.49% – 25.49%
SoFi	Good credit	8.99% – 29.99%
Upgrade	Fair credit	8.49% – 35.99%

Credible: Best marketplace

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LendEDU rating: 5 out of 5

• Offers a range of prequalified rates from multiple lenders
• Does not affect your credit score
• Transparent fees and terms

Credible stands out as our top-rated loan marketplace. You can see prequalified rates from a range of lenders, a service that doesn’t cost you a penny. 

It also scores well for its transparency on fees and terms, making it a top choice for borrowers looking to compare options without unwanted surprises.

LightStream: Best for excellent credit

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LendEDU rating: 4.8 out of 5

• Competitive interest rates
• No fees or prepayment penalties
• Fast funding times

For those with excellent credit, LightStream stands out. Its rates are hard to beat, and its loan amounts are substantial. You can get a repayment term of up to 12 years. 

A strong credit history is required to enjoy its benefits, and LightStream doesn’t allow borrowers to prequalify without a hard credit check—so we recommend this lender if you have excellent credit and are confident you’ll be approved.

SoFi: Best for good credit

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LendEDU rating: 5 out of 5

• Competitive rates for good credit
• Robust customer support
• Membership perks for banking customers

SoFi is our top choice for those with good credit looking for competitive rates. It offers membership perks to customers with SoFi bank accounts or other products, and strong customer support.

Adding to its appeal, the absence of origination fees and prepayment penalties enhances the overall affordability of SoFi loans. For those aiming to consolidate debt or finance large purchases, SoFi’s streamlined application process and quick funding times can be particularly beneficial.

Upgrade: Best for fair credit

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LendEDU rating: 4.9 out of 5

• Personalized loan recommendations
• Provides credit-building tools 
• Requires fair credit to qualify 

Upgrade is an optimal choice for those with fair credit. It offers personalized loan recommendations and credit-building tools. Upgrade charges an origination fee, which is not uncommon to take out a personal loan with less-than-stellar credit.

Pros and cons of signature loans 

Like any other type of financial product, signature loans have benefits and drawbacks. Here are a few things you should consider when deciding whether or not a signature loan is right for you:

Pros

• Loan money can be used for just about anything

  The lender will likely outline what it deems an acceptable use of the money. Some lenders stipulate what the money can and cannot be used for, such as funding a small business venture.

• Unsecured financing

  You don’t need to secure the loan with a high-value personal asset like a car or house. If you default on the loan, your assets won’t be at risk.

• Fixed monthly payments

  With a fixed interest rate, your monthly payments should be easy to budget for each month since each payment should be the same. 

• Fast underwriting process

  Once you qualify for a signature loan, it shouldn’t take long for your loan application to be processed and for you to receive your money.

Cons

• Lower borrowing limits

  Because the loan isn’t secured with a high-value asset, the borrowing limits won’t be as high as with a secured loan.

• Harder eligibility requirements

  Signature loans are not secured with personal collateral, which means borrowers must show they are financially responsible in more ways than one. With harder criteria to meet, some borrowers may not qualify.

• Higher interest rates

  Lenders charge higher interest rates on unsecured loans. If you are looking to save money in interest, you may want to consider a secured personal loan or a shorter loan term.

• May lower your credit score

  Additional debt will affect the “amounts owed” portion of your credit profile, which could lead to a lower credit score.

How to get a signature loan 

If a signature loan makes sense for you, here’s how to shop and apply for one.

1. Check your credit score and credit reports

Each person has three credit reports and scores from the major credit bureaus. First, review your credit report information and check for errors. It’s not uncommon for one credit bureau to make mistakes while the others don’t. If you find any issues, begin the dispute process.

2. Check eligibility requirements

Your credit score and income may be fine with one lender but not good enough for another, so check each lender’s eligibility requirements first. 

3. Apply for prequalification

Prequalification should only involve a soft credit check, which doesn’t hurt your credit score. If you qualify, the lender should send you a link outlining your estimated rates. However, even if you prequalify for a loan, that does not necessarily mean you’ll be approved. You won’t be formally approved until you officially submit a loan application.

4. Compare lenders

Getting prequalified from a few lenders helps you choose the best one. Pay particular attention to the loan origination fee, which is deducted from the loan funds before you receive them. One company may have a lower interest rate but a higher loan origination fee, possibly making it the more expensive loan option. 

Lastly, if you are in a financial emergency, compare how long it should take you to get your money. The timing can vary greatly between lenders. 

5. Gather loan document

You may need some or all of the following documents to apply for a signature loan formally:

Government-issued ID

• Driver’s license
• Passport
• Certificate of citizenship
• Military ID
• Social security card

Proof of address

• Utility bill
• Rental agreement
• Mortgage statement

Proof of income

• Bank statements
• W-2 
• Tax return
• Pay stub
• 1099

6. Submit loan application

Complete a formal loan application with your chosen lender. You’ll likely be asked to submit personal information, such as your Social Security number, as well as submit any necessary loan documents the lender requires. 

7. Sign loan agreement

If approved, you’ll need to sign a loan agreement. Make sure to read through the terms and contact a loan officer with the lender if you have any questions. Once you sign and submit the loan agreement, you should receive your loan amount shortly afterward. Some lenders can disburse payments the same business day, while others may need a few days or even a few weeks. 

8. Make the monthly payments

To save money and avoid damage to your credit score, make sure to make your monthly payments on time. If you can, sign up for auto-payments so you don’t have to worry about accidentally missing your payments.  

Alternatives to signature loans

Exploring alternatives to signature loans can help you make an informed decision. Consider these options.

Secured personal loan

Secured personal loans differ from signature loans because they require collateral, such as a car, home, or savings account, to secure the loan. This security lowers the risk for lenders, often leading to lower interest rates and better terms for the borrower than unsecured loans. 

However, the notable drawback is the risk of losing the collateral if you can’t repay the loan. Secured loans can be a solid option if you need a larger loan amount or have less-than-perfect credit, but it’s essential to consider the potential of asset forfeiture.

Credit card

Credit cards can be a viable alternative to signature loans, especially for smaller, short-term expenses. Unlike a loan, a credit card doesn’t provide a lump sum but offers a revolving line of credit. 

However, interest rates can be higher than those for signature loans, making it a less cost-effective solution for long-term borrowing.

Home equity loan

If you’re a homeowner with equity in your property, a home equity loan or line of credit may be a viable alternative. These loans tend to offer lower interest rates than signature loans. However, the loan is secured against your property, which could be at risk if you fail to repay.

Peer-to-peer lending 

Peer-to-peer lending platforms offer a unique model where individuals lend and borrow without banks or credit unions mediating the process. These platforms can offer competitive rates, but the funding process may be slower than other alternatives or traditional banks. 

The risk for lenders can be higher due to the absence of institutional guarantees.

401(k) loan

A 401(k) loan allows you to borrow money from your retirement savings. This type of loan is unique because you are borrowing from yourself, meaning the interest you pay goes back into your 401(k) account. Benefits include no credit check and relatively low interest rates. 

However, the major drawbacks include the potential loss of investment earnings on the borrowed funds and the risk of having to repay the loan in full if you leave your job. Also, not all 401(k) plans offer loans, and there are limits to how much you can borrow.

Also, the interest you pay is double-taxed because after tax money is used to repay the loan and will be taxed again upon withdrawal.

Payday alternative loan (PAL)

Credit unions offer PALs as an option to avoid high-cost payday loans. They have much lower interest rates and fees than traditional payday loans, making them a more affordable option for borrowers. 

To qualify, borrowers must be members of the credit union offering the PAL. Loan amounts are typically small, ranging from $200 to $2,000, and terms are short, up to 12 months. These loans can be a good option for small emergency expenses.

Credit union loan

Credit union loans often come with lower interest rates and more favorable terms than loans from traditional banks because credit unions are not-for-profit organizations designed to serve their members. 

To apply for a loan, you must first become a member of a credit union, which can involve living, working, or studying in a certain area or being associated with a specific group. 

Credit union loans can be more accessible and affordable, especially for those with less-than-perfect credit, but membership requirements may limit who can apply.

Borrow from friends and family

Borrowing money from friends and family can offer a no-interest or low-interest loan option without needing a credit check. This alternative can be flexible in terms of repayment terms and amounts. 

However, mixing finances with personal relationships can lead to strained relationships if disagreements arise over repayment. Setting clear terms and possibly even drafting a written agreement is crucial to minimize misunderstandings and manage expectations.

Paycheck advance

A paycheck advance allows you to access funds from your upcoming paycheck before the regular payday. Some employers offer this as a benefit to employees, and several third-party apps and services provide similar advances. 

This option can help cover immediate expenses without incurring long-term debt. However, because it’s essentially borrowing against future income, it’s important to use this option sparingly to avoid becoming reliant on advances and ending up in a cycle of debt.

FAQ

What determines my eligibility for a signature loan?

To qualify for a signature loan, lenders examine your credit score, debt-to-income ratio, and employment status. Each lender has unique standards, so we recommend checking the terms before applying.

How does a signature loan affect my credit score?

A signature loan can have positive and negative impacts on your credit score. On-time repayment helps boost your credit score. However, your credit score could decline if you default or make late payments.

Can I get a signature loan with bad credit?

You can get a signature loan with bad credit, but it may come with higher interest rates. Some lenders specialize in lending to individuals with impaired credit, but be sure you understand the terms before agreeing to a contract.

What’s the difference between a signature loan and a secured loan?

A signature loan is an unsecured loan where your signature and good faith pledge to pay are your collateral, and a secured loan requires you to offer an asset, such as a car or a home, as collateral.

How long does it take to receive funds from a signature loan?

The time it takes to get funds from a signature loan varies by lender. Generally, if approved, you will receive the funds within a few business days.

Are there any specific requirements for using the loan amount?

There usually aren’t specific requirements for using the funds from a signature loan, but it’s always wise to borrow responsibly and use the loan for appropriate needs.