Home Loans Other Loans What are Signature Loans?

What are Signature Loans?

Signature Loans are credit facilities for which no security is required to be created by the Borrower in favour of the Lender. These loans are also known as Unsecured Loans. The term gained currency because such loans are made on the strength of the signature of the Borrower.

Kinds of Signature Loans

IOUs (I owe you), personal loans, and credit card outstanding are all kinds of signature loans. All other terms such as interest rate, payback period, penal provisions in case of default, etc. are spelt out as in the case of any loan.

Sanction of Signature Loans

The major criterion for sanction of such a loan is your credit track record that is measured in your credit score. Your current indebtedness and income flows may also be considered by the Lender.

Interest rate

The rate of interest payable for such loans is usually higher. This is because of the higher risk of default. But the contracted rate of interest would also take into account your credit score and credit history of meeting debt servicing obligations on schedule.

Default situation

If there is default in paying dues, the Lender has no security to which he can take recourse. But your credit score will be impaired, you may face pressure from collection agents and be sued for recovery of the amount due.

1 COMMENT

Catherine Macalpine February 14, 2016 at 4:00 am

This sounds like an easy way to borrow money, but in the end if you default the consequences will be more dire. You could be sued and end up paying back the borrowed money, the interest on that loan, plus a whole lot of court and administrative fees.
Randolph - you write some great articles 🙂