What are Signature Loans?

Malcolm Tatum
Malcolm Tatum

Sometimes referred to as an unsecured loan, signature loans are financial agreements made between a lender and a borrower that requires no collateral. Unlike other loans in which the borrower pledges property or some other assets as security for the loan, the signature loan is extended on the basis of the borrower’s good name, his or her credit rating, or a combination of the two. Signature loans are available for both individuals and businesses.

A signature loan is extended on the basis of the borrower's good name.
A signature loan is extended on the basis of the borrower's good name.

One of the advantages of obtaining unsecured signature loans is that none of the assets of the borrower are committed or pledged for the life of the loan. This means the debtor is free to use all assets in any manner he or she sees fit. This includes selling off assets in order to comply with the terms of the unsecured loan.

Typically, the paperwork necessary to establish signature loans is less complicated than with other loan types. This also helps to move the loan process along at a quicker pace, as there are fewer details to address. In some cases, it is possible to obtain a signature loan in a matter of hours.

There is even the possibility of obtaining signature loans when the current credit rating is not the best. Signature loans for bad credit are somewhat more difficult to obtain; however, if the lender is familiar with the borrower and is confident the loan will be repaid according to terms, the debtor’s current credit status may be overlooked.

Bad credit signature loans do not necessarily have to be obtained from a loan agency or banking institution. A personal signature loan from a relative or acquaintance may help the debtor through a temporary financial reversal. As with any financial agreement, it is a good idea to lay out the terms and conditions for repayment in a clear and concise manner. This helps to minimize the chances of any misunderstanding on the part of either the lender or the borrower during the life of the loan.

When unsecured signature loans are obtained from a banking institution of any kind, there is a good chance that the rate of interest will be somewhat higher when compared to other types of loans. Since the lender is assuming a higher degree of risk by not requiring collateral, the slightly higher interest rate helps to provide some additional compensation for the increased risk. Even with the higher interest, signature personal loans are often ideal solutions for short term situations; when the loan is repaid quickly, the increased interest rate has a minimal impact on the total amount that is repaid to the lender.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including wiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

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