Signature Loans: Definition, Types and Benefits
A signature loan is a type of unsecured personal loan that’s simple to apply for. It gets its name because your signature is usually all you need to secure it.
These "good faith" personal loans rely on your promise to repay according to the lender's plan rather than any type of collateral.
What are signature loans and how do they work?
Signature loans are straightforward and easy to understand. You apply for the loan, review the details, and sign the loan agreement. Once approved, the money is deposited directly into your bank account as a lump sum, and you can use it however you need.
Signature loans typically offer fixed repayment terms, meaning you’ll repay the money in regular installments according to the loan agreement. Unlike Payday Loans, which require full repayment within two to four weeks, signature loan repayments can be easier to work into your budget.
One major benefit of signature loans is that they don’t require collateral. You don’t have to offer your house, car, or other asset to secure a signature loan. Since there’s no collateral appraisal involved, you’ll often receive the funds in less time, although you’ll likely pay more in interest because the lender takes on more risk.
What can you use a signature loan for?
Signature loans are flexible and can be used for many purposes, such as:
- Emergency expenses
- Medical bills
- Home repair projects or remodels
- Debt consolidation
- Car repairs
In short, once the money is deposited into your account, you can use it for anything — it's yours to spend as needed.
How to apply for a signature loan
Application requirements vary by lender and your state of residence, but you’ll generally need proof of a stable income. This means providing copies of your paycheck stubs, bank statements, and other supporting documents.
The lender will also need to verify your identity, which may require your:
- Government-issued ID
- Social Security number or ITIN
- Recent utility bill displaying your mailing address
- Active checking account
- Voided personal check
Make sure to check with your lender for specific requirements. Once you have the necessary documents, you can apply and, if approved, receive the funds without needing to provide any collateral.
Advance America signature loans
Advance America is proud to offer multiple signature loans, including Payday Loans, Installment Loans, and Lines of Credit. Depending on your preference, you can apply for these loans online or in-store.
Do you need good credit to get a signature loan?
Whether you need good credit depends on your lender. Traditional lenders like banks and credit unions typically require a good credit score. If you don't have good credit, you might need someone with good credit to co-sign the loan.
Alternative direct lenders like Advance America, however, consider factors beyond credit. We look at your income and employment situation to find the right loan for your needs, regardless of your credit history.
Benefits of signature loans
There are many reasons to choose a signature loan over other loan options.
- Fast and convenient: The application process is typically quick and straightforward.
- Unsecured: Unlike secured loans, you don’t need to offer collateral, reducing the risk of losing an asset.
- Competitive rates: Signature loans often have lower rates compared to credit cards.
- Flexible use: You can use the funds for any purpose, usually without restrictions.
Considering the quick application, approval, and funding process, signature loans could be ideal for sudden emergencies like car or home repairs or medical bills.
Types of signature loans
Although loan availability varies by state, Advance America specializes in three types of signature loans: Payday Loans, Line of Credit, and Installment Loans.
- Payday Loans: These are short-term, small-dollar loans that are usually less than $1,000. They are designed to cover an emergency or everyday expenses that might pop up before payday.
- Line of Credit: When you need ongoing access to funds rather than a one-time amount, a Line of Credit is a great option. Similar to a credit card, you can withdraw money as needed and repay what you borrow, keeping the credit line open as long as necessary.
- Installment Loans: These loans are a middle ground between Payday Loans and Lines of Credit. They provide a one-time infusion of money, typically larger than a Payday Loan but smaller than a Line of Credit, with repayment through a single payment or monthly installments.
How to get a signature loan
1. Research and compare loan options
When choosing a signature loan, it's important to do your homework. There are many different lenders offering various types of signature loans, so you’ll want to check the repayment terms, interest rates, and any additional fees.
2. Check your credit score
It’s always a good idea to check your credit score before applying for any type of financing. Most traditional lenders require a good credit score, so you may not qualify for a bank loan on your own. If that’s the case, you might need a co-signer or consider a lender like Advance America, which may have different criteria.
3. Fill out the application
Once you find the right signature loan from a reputable lender, it’s time to apply. At Advance America, you can apply online or in-store at your nearest location. Either way, you'll need the following:
- Your government-issued ID
- Proof of income, such as pay stubs or bank statements
- An active checking account
- Social Security number
- A working email address (if you're applying online)
4. Wait for approval
Once you complete and submit the loan application, you'll need to wait for approval. Approval time will vary from lender to lender. At Advance America, we can let you know if you're approved within minutes!
5. Receive your funds
Once approved, you should receive your money quickly. For instance, if you’re approved for an Advance America loan before 10:30 AM EST, you’ll receive the funds on the same day. For loan applications approved after 10:30 AM EST, you can expect a deposit on the next business day.
6. Review your repayment plan
Finally, it's crucial to understand and prepare for your loan repayment plan. This will include creating a budget and setting aside enough money to make your loan payments. The repayment period for most signature loans can be from several months to several years. Signature Payday Loans have a shorter repayment window of just two to four weeks, so you'll need to plan accordingly.
Signature loan vs. Line of Credit
When you need money to cover emergency and everyday expenses, applying for a loan can be a good option. Two popular choices are signature loans and Lines of Credit. Both can help you cover costs, but they work differently.
Depending on your lender, you can secure both a signature loan and a Line of Credit by signing the corresponding loan agreement. You then repay whatever money you borrow according to the repayment terms of the lender. However, this is where the similarities between these loans end, as they are different in several ways.
Key differences
| Signature Loan | Line of Credit |
| Borrowing limits are typically around $1,000 to several thousand dollars. | Borrowing limits can be tens of thousands of dollars, depending on your credit score. |
| Funds are directly deposited into your bank account. | Withdraw funds from your credit line as needed. |
| Often have fairly high interest rates. | Typically have lower interest rates than signature loans. |
| Repay the loan in a single payment or via monthly installments. | Repay the money you borrow as needed, but not according to a strict schedule. |
Technically, a Line of Credit is a type of signature loan because many lenders only require your signature and a promise of repayment to approve the loan. Having said that, these loans are not interchangeable, and they differ in the following ways:
- How much you can borrow: You can typically borrow more with a Line of Credit. Signature loans, including Installment and Payday Loans, often max out at $1,000. Lines of Credit can exceed $10,000 depending on your credit score and lender.
- How the funds get distributed: With a signature loan, the money is deposited directly into your bank account. With a Line of Credit, the money sits in a credit line, and you can withdraw as needed.
- Interest rates: Signature loans generally have higher interest rates. Most lenders require a better credit score for a Line of Credit than for a signature loan. The better your credit score, the lower your interest rates.
- Loan repayment process: Signature loans are repaid in a single lump sum or via scheduled monthly installments. With a Line of Credit, you repay as needed based on how much you draw from the credit line.
Which is right for me?
Choosing between a signature loan and a Line of Credit depends on your specific needs. If you need a one-time amount to cover emergency or unexpected expenses, a signature loan could be a good option. However, if you need ongoing access to funds or are unsure how much money you'll need, a Line of Credit might be more suitable.
Regardless of the type of loan you need, Advance America offers flexible options tailored to meet your financial situation. We consider various factors beyond just your credit score, helping you find a loan that works for you.
