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Fact Checked
Update date 14.04.2025
A signature loan is a type of unsecured personal loan where your signature is all that's needed to back it up. Unlike secured loans, you don’t have to put up any collateral, and it’s different from revolving credit like credit cards because it gives you a lump sum with fixed payments over a specific period. Plus, you can use the money for pretty much anything, unlike loans that are meant for specific purposes, like buying a car. Getting approved mainly depends on your credit score and debt-to-income ratio, and keep in mind that interest rates are usually a bit higher since there's more risk for the lender. People often use signature loans for things like unexpected expenses, consolidating debt, or making big purchases, and you’ll pay it back in fixed installments over the loan term.
Requirements and Conditions
Requirements
A good credit score, typically above 650, is preferred and increases the likelihood of approval and favorable loan terms.
Stable income and a consistent employment history are necessary to demonstrate the borrower's ability to repay the loan.
A low debt-to-income ratio is usually needed. This shows that the borrower can handle current and future debt.
You need a valid ID and proof of where you live. This can be a driver’s license and a utility bill.
Recent bank statements may be requested to evaluate financial stability and confirm income.
Employment verification is often needed. This can include pay stubs or employment letters. Self-employed applicants might need to show tax returns.
You must be at least 18 or 19 years old, depending on your province or territory.
Canadian residency is required, and proof may be needed during the application process.
Conditions
Interest rates depend on the borrower's credit score, loan amount, and financial profile. They can also vary by lender.
Loan amounts are defined within a set range, determined by lender policy and borrower creditworthiness.
Repayment terms usually last from 6 months to 5 years. They are chosen based on the borrower's money situation and goals.
Fees such as origination charges and penalties are included in the loan agreement. These penalties can be for late payments, insufficient funds, or early repayment.
Some lenders may restrict how loan funds can be used, even though many signature loans offer flexible use.
Lenders provide estimated timelines for approval and fund disbursement, often within a few business days.
Minimum credit score requirements are clearly stated, with better scores leading to more favorable loan conditions.
Signature loans are a flexible way for people to borrow money without needing collateral. They depend on the borrower's promise to repay. This makes them accessible to many, especially those without valuable assets. However, you should be aware that signature loans often have higher interest rates as they carry more risk for lenders.
FAQ
Do signature loans affect my credit?
Signature loans can be good for your credit if you manage them well. When you apply for a loan, a hard inquiry may lower your credit score a bit. After the loan is approved, making timely payments can help your credit history. Paying on time shows you are responsible with money, which can improve your credit score over time. However, missing payments or defaulting can hurt your credit score. So, it is important to handle signature loans carefully to keep or boost your creditworthiness.
How do I get out of a signature loan?
To get out of a signature loan, follow the terms in the loan agreement. First, check the agreement for any prepayment penalties or fees for paying early. If there are no penalties, think about paying off the loan early to save on interest. If you face financial problems, talk to the lender about possible solutions. This could include changing the loan terms or creating a new repayment plan. It is important to address issues early to avoid harming your credit. Work towards a solution that works for both you and the lender, whether it is a credit union, payday lender, or bank.
