Signature Loan

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".

BREAKING DOWN '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.

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