Signature Loan

AAA

DEFINITION of 'Signature Loan'

A type of personal loan offered by banks and other finance companies that uses only the borrower's signature and promise to pay as collateral.

A signature loan can typically be used for any purpose the borrower chooses, although the interest rates will be higher than most forms of credit due to the lack of any real collateral.

Also known as a "good faith loan" or "character loan".

INVESTOPEDIA EXPLAINS 'Signature Loan'

The lender will typically just look for a solid credit history and a source of income when deciding whether to issue a signature loan. A co-signer may be requested by the lender, but the co-signer would only be signing a promissory note, and would be called upon only in the event that the borrower is unable to repay the loan.

Interest rates on signature loans can run very high - even higher than credit cards. Borrowers should only choose this option when they are in great need and they have the income to repay the loan.

RELATED TERMS
  1. Character Loan

    A character loan is a type of unsecured loan that is made on ...
  2. Countersignature

    An additional signature on a document that has already been signed. ...
  3. Home Equity Line Of Credit - HELOC

    A line of credit extended to a homeowner that uses the borrower's ...
  4. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  5. Unsecured Loan

    A loan that is issued and supported only by the borrower's creditworthiness, ...
  6. Personal Income

    Total compensation received by an individual. Personal income ...
Related Articles
  1. Credit & Loans

    What are the main categories of debt?

    Learn about the different types of debt available for consumers including secured debt, unsecured debt, revolving debt and mortgages.
  2. Retirement

    Should You Borrow From Your Retirement Plan?

    It makes sense to dip into your savings in some cases, but you must be aware of the potential consequences.
  3. Economics

    Forces Behind Interest Rates

    Get a deeper understanding of the importance of interest rates and what makes them change.
  4. Retirement

    Getting A Loan Without Your Parents

    Use the 5 "W"s to finance your dreams without banking on a second signature.
  5. Options & Futures

    Payday Loans Don't Pay

    Hold too tightly to this rescue line and you'll soon be drowning in debt.
  6. Investing Basics

    Subprime Lending: Helping Hand Or Underhanded?

    These loans can spell disaster for borrowers, but that doesn't mean they should be condemned.
  7. Professionals

    How do companies measure labor supply in human resources planning?

    Find out how and why a company's human resources department would measure labor supply, and what policies would address a shortage or surplus.
  8. Fundamental Analysis

    Why are OTC (over-the-counter) transactions controversial?

    Learn more about over-the-counter transactions, and why OTC traders are considered riskier than traders working with larger market exchanges.
  9. Fundamental Analysis

    What is the difference between cost of equity and cost of capital?

    Read about some of the differences between a company's cost of equity and its cost of capital, two measures of its required returns on raised capital.
  10. Fundamental Analysis

    What is arbitrage pricing theory?

    Find out what arbitrage pricing theory is and how it can theoretically be used by investors to generate risk-free profit opportunities.

You May Also Like

Hot Definitions
  1. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  2. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  3. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  4. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  5. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  6. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
Trading Center