Curated By: Business Desk
Last Updated: September 19, 2023, 18:07 IST
We have come across various loans like home loans, personal loans, and even gold loans. Have you ever heard about signature loans? A signature loan is a type of personal loan or unsecured loan provided to customers by lenders when a loan applicant gives their signature as collateral. In this type of loan, the signature acts as a reassurance that the loan borrower will repay the amount without any fail within a specific time frame. The borrower will not give any other form of security or collateral against the loan borrowed.
One of the biggest advantages of a signature loan is that one can apply for it without citing any reason to the lender. A signature loan is also referred to as a character loan or a good faith loan that is issued solely against the borrower being reliable and credible. You can get a signature loan from either a bank or a Non-Banking Financial Corporation (NBFC), only if you can prove that you will be able to repay it on time.
As per the information available, some lenders allow e-signatures or digital signatures for these loans’ approvals. It is quite common in countries like the United States.
How does a lender approve a signature loan?
When a person approaches a lender for a signature loan, the lender will first evaluate your employment status, income, credit history, bankruptcy history and credit score by CIBIL. The higher the credit score, the higher your credit history. If you have a good income, the lender may accept your loan application.
A few lenders may ask you to arrange for a co-signer. The co-signer will be responsible to sign a promissory note. So, in case the borrower misses out on repaying an instalment or is a defaulter, the lender will contact the co-signer, who will be held responsible.
Documents required for signature loans
To apply for signature loans in India, you will require documents like identity and age proof, address proof, income proof, Aadhar card, PAN card, latest bank statements, salary slips and passport-sized photographs.
It is important to note that signature loans are more expensive than secured loans, as lenders charge high interest rates.