A signature loan, also known as a “character loan” or “good faith loan,” is categorized as an unsecured personal loan.
Unlike a secured loan, this type of loan does not require security, such as an asset or home that the lender can foreclose if you don’t pay it back.
Instead, the loan is backed by your signature, which is a legitimate promise to repay the loan amount.
To determine whether to lend a signature personal loan, lenders typically look for solid credit history and sufficient income to repay the loan.
In some cases, a lender may require a loan guarantor, but a guarantor is only contacted if the primary borrower defaults on the loan.
Unsecured refers to the fact that these loans are not secured by any form of physical security, unlike auto loans and mortgages. Signature personal loans are amortized over a set period and paid back in equal monthly payments.
When you apply for this type of, lenders take into account factors such as your credit history, income, and credit score to determine if you qualify for the loan.
These factors also help lenders determine the interest rate and loan amount that the borrower qualifies for.
If you are approved for this type of unsecured loan, the lender will transfer you a lump sum in cash.
You then pay off the loan with interest over a fixed repayment term, usually 24 to 60 months or longer.