What Can You Use a Signature Loan for?

If you’re considering a signature loan, you will find there are a number of things this type of loan can fund. This type of financing, however, is not easy to obtain and differs from other, more common loans.

How A Signature Loan Works

Unlike a car loan or mortgage, a signature loan is not guaranteed with the actual purchase. It is an unsecured loan that is granted based on a borrower’s ability to pay. This type of loan can have its advantages in regard to spending restrictions, but can have more stringent approval requirements because the loan is not backed with collateral.

Lending institutions will generally look at these things to determine creditworthiness for a signature loan:

  • A person’s actual credit history
  • Credit scoring
  • Debt-to-income ratio

Since a signature loan cannot be covered through the repossession of collateral, lenders tend to reserve this type of funding for people who have strong scores and sufficient income to cover the payments.

Uses For A Signature Loan

Unless a lender specifically demands a set purpose for the expenditure of funds from a signature loan, the money can technically go toward anything. Signature loans can be used for such things as:

  • Making purchases – People sometimes use unsecured loans to make purchases that are too large or too expensive to fund using high interest rate credit cards.
  • Consolidating debt – In some cases, a signature loan can work well for consolidating outstanding debt into a single, lower interest rate loan.
  • Medical emergencies
  • Home repairs

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