A signature loan is a type of unsecured personal loan that is offered by financial institutions such as banks. Signature loans received their name for being based on the borrower’s integrity and character. This is in stark contrast to secured loans, which require some sort of collateral to obtain a loan from a financial institution, such as a car title, a home in the case of a home mortgage, or other highly valued items.
Signature loans are a type of closed-end credit, meaning that once the loan has been paid off, the borrower has technically closed the account until another request is made for another loan. Other types of credit exist which function on a recurring basis. This is called open-ended credit, or revolving credit. Examples of open-ended credit include credit cards and lines of credit.
Signature Loans vs. Personal Loans – Is There a Difference?
One important thing to note is signature loans and personal loans are the same type of loan. Both types of loans are unsecured and closed-end credit, do not require collateral on the borrower’s side and are offered to those with poor credit history. Signature loans and personal loans are synonymous with each other. The term “signature loans” came into existence due in part to a signature being virtually the only requirement to obtaining the loan. Many signature loans are also installment loans, which provide equal payments over the duration of the loan to make the loan more manageable.
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