Know the features, eligibility criteria, approval process, and other details
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A signature loan, also known as a 'character loan' or 'good faith loan,' is an unsecured loan where the borrower commits to repayment solely based on their signature. Unlike secured loans, no collateral is required. With flexibility similar to personal loans, you can use the loan amount for diverse financial needs. Approval depends on the borrower's demonstrated ability to repay, with lenders assessing reliability and creditworthiness before sanctioning the loan.
These loans have the following key characteristics:
The borrower’s signature is the sole collateral needed to receive this loan
These are unsecured loans like personal loans
The interest rate applied is relatively higher as it is collateral-free
Borrowers must have a good credit history to apply
Here are some varied requirements that can be fulfilled with the help of these loans:
Debt consolidation
Educational fees
Wedding expenses
Home renovation or redecoration
Foreign trip expenses
Vehicle purchase
Clearing credit dues
Medical or health costs
Emergency expenses and more
While these may vary from lender to lender, borrowers are generally required to fulfil the following criteria:
Age: 21 to 60 years
Monthly Income: More than ₹20,000
- CIBIL Score: 700 or more
When applying for a signature loan, you will have to furnish the following documents:
Proof of identity: Aadhaar Card, PAN Card, Driving Licence, etc.
Proof of income: Latest salary/pay slips, latest bank statements, employment letter, etc.
Proof of address: House Tax Slip, Electricity Bill, Gas Connection Bill, etc.
2 passport-sized photographs
FAQs
How do signature loans work?
These are unsecured loans that require a solid credit history from the borrower. Since there is no collateral, lenders rely on the borrower's creditworthiness and charge higher interest rates compared to secured loans.
What is the typical repayment period for signature loans?
The repayment period for this type of loan is often between 1 to 5 years. The terms are agreed on by the borrower and the lender at the time of loan approval.
What is the interest rate on signature loans?
Interest rates can vary depending on factors like credit score, loan amount, and the lender's policies. Rates are typically higher than secured loans due to the lack of collateral.
How do I qualify for a signature loan?
You typically need a good credit score, stable income, and low debt-to-income ratio to qualify for such loans. Lenders may also consider your employment history and other financial factors.
Can I get a signature loan with bad credit?
It might be challenging to get these loans with bad credit, as lenders often prefer borrowers with good credit. However, some lenders specialise in offering loans to individuals with less-than-perfect credit.
Are there fees associated with signature loans?
Yes, there may be fees associated, such as origination fees or prepayment penalties. It's important to review the terms and conditions of the loan agreement to understand any applicable fees.
How do I repay my signature loan?
These loans are typically repaid in equated monthly instalments (EMIs) through standing instructions to debit your bank account with the EMI amount.
Can I prepay a signature loan?
Many lenders allow for prepayment without penalties. However, it's essential to confirm the terms with the lender before taking out the loan.
What are the consequences of defaulting on a Signature Loan?
Defaulting on these loans can have the following consequences:
Penalty Charges:
If you cannot pay the EMIs on time or make the full loan repayment within the agreed-upon timeline, then you will have to pay a heavy penalty fee. The loan policy document typically carries the break-up of payable default costs.
Credit Score Impact:
If you fail to repay your loan, your credit score will also be negatively impacted. Your credit report considers your entire repayment history and a default penalty can significantly damage your credit score.
