A signature loan, also known as ‘character loan’ or ‘good faith loan’ is an unsecured personal loan. This loan type is based entirely on the borrower’s creditworthiness and their promise to repay the loan. The loan is collateral free and the approval is determined by the borrower’s credit history, income and financial stability.
A signature personal loan can be taken for various purposes such as for debt consolidation, medical expenses, or other personal needs.
How do Lenders Approve Signature Loans
Lenders usually approve a signature loan based on the promise made by the borrower through their signature. The approval of the loan is determined through the following purpose:
- Credit check: When applying for a signature loan, lenders will assess your credit history and credit score to determine your creditworthiness. Having a high credit score will increase the chances of your loan approval.
- Income verification: The next step will be to verify your income and to ensure that you have a stable source of income. This will help lenders determine whether you will meet the loan repayment requirements.
- Debt-to-income ratio: Lenders will evaluate your debt-to-income ratio to ensure that you will be able to manage your monthly obligations through your income. A lower ratio is usually preferable.
- Employment history: Your employment history will also play a role in determining your loan approval. A stable employment history will add value to your credibility.
- Purpose of the loan: Lenders may inquire about the purpose of the loan so that they can identify the risk associated with the loan.
Eligibility Criteria For Signature Loans
Certain requirements must be met for the lender to provide you with financial assistance. Meeting these criteria increases the likelihood of approval and may influence the loan terms. Different lenders will ask for different requirements, here are the general eligibility criteria for signature loan:
- Must be 21 - 60 years of age.
- Must be salaried or self-employed.
- Minimum income should be atleast ₹20,000.
- CIBIL score of 650 above.
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Documents Required For Signature Loans
Providing the right documents will ensure a seamless application process, Here are the key documents required to apply for signature loans:
These documents are simple and help in faster process of the loan, some of these documents are:
- Proof of identity: Aadhaar card, Voter ID, Passport.
- Proof of age: Driver’s Licence, PAN card.
- Proof of income: Salary slips, Bank statements, IT returns.
- Proof of residents: Passport, Rental agreement, Utility Bills.
- Passport size photograph
Features of Signature Loans
Signature loans are a versatile financing solution to help you meet various personal needs. It offers the following features:
Flexible Loan Use
Signature loans offer
borrowers flexible use
for various purposes.
Quick Loan Processing
The loan process is instant
because of zero collateral.
Collateral Free
Signature loans are
unsecured with no need
for collaterl.
Competitive interest rate
Interest rates for these
loans can be higher as
they are unsecured.
Flexible Loan Tenure
Enjoy a flexible loan
repayment structure
Paperless Process
You can also opt for applying
for a signature loan online.
For What Purposes Can I Utilise Signature Loan?
Signature loans are unsecured personal loans, so there is no restriction to the purpose for taking the loan. Here are the different ways for which you can utilise a signature loan:
- Medical expenses: A signature loan will cover expensive medical bills, surgeries and other necessary procedures.
- Wedding expenses: You can cover any wedding related cost with a signature loan, including venue, attire and catering costs.
- Debt consolidation: You can use the signature loan to pay off all your existing debts to make your EMI payments more manageable.
- Home renovation: Enhance your living space and improve your home by repairing and renovating using this loan.
- Education: Go for further studies by taking the help of a signature loan. It will cover the cost of tuition and course fees.
- Travel expenses: Explore the world and have the adventure of a lifetime. This loan will cover all costs and expenses.
- Emergency expenses: Address unforeseen financial requirements or emergencies as their flexibility in use makes them a practical choice.
Effects of Not Paying Signature Loan on Time
Not paying a signature loan on time can have serious consequences. Late payments can lead to charges, increased interest rate and damage your credit score. This will affect your future financial opportunities. The main effects of not paying a signature loan on time are:
- Penalty: Certain penalty in the form of extra charges and fees will be imposed on your loan, if you fail to pay an EMI or struggle to repay the whole loan amount. On time payments is one of the most important conditions in the loan terms of a signature loan. So any delay or default will lead to serious consequences.
- Negative impact: Not paying a signature loan will have lenders reporting the default to CIBIL. This will have an adverse negative impact on your credit score, history and will affect your future loan prospects.
Pros & Cons of Signature Loans
Signature loans are a great financing option, however like any financial product, it has both pros and cons. Here are some of the advantages and disadvantages of signature personal loans:
You can also check other secured loan options from below:
| Pros | Cons |
|---|---|
| Versatile and Flexibility of use | High interest rates |
| No collateral | Heavy dependency on borrower’s credibility. |
| Quick access | Loan amount is limited |
| A chance for credit building | Penalties for late payment |
How to Get a Signature Loan
You can apply for a signature loan online and offline, just follow these few steps on how to get a signature loan:
- Step 1: Visit the bank or NBFC, or visit their website.
- Step 2: Fill in the application form for a signature personal loan.
- Step 3: Submit all the necessary documents.
- Step 4: Provide your signature and wait for the approval.
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Frequently Asked Questions
Signature loans are unsecured personal loans that are granted based on the borrower’s creditworthiness and a promise to repay without collateral.
The benefits of signature loans is that they are versatile in use, have no need for collateral, offer quick access to funds at fixed interest rates and offer improvement opportunities for credit score.
You can visit the online website of any bank or NBFC that is offering signature personal loans. Fill the application form and submit the necessary documents.
The loan amount you can get from a signature loan will depend on your creditworthiness, credit history and your repayment capabilities.
No, signature loans are not available for people with bad credit as the approval for the loans solely depends on your creditworthiness.
Yes, you can use a signature loan for debt consolidation.
SIgnature loans are personal loans, so getting it for business use will have limitations.
No, a signature loan is a type of personal loan.
You can use a signature loan for personal expenses, medical expenses, debt consolidation, wedding expenses, emergency, education and more.
You can get a signature loan from any bank or NBFC that is offering this loan option.
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