Signature Loan vs Personal Loan – Know the Differences

Posted on Friday, March 7th, 2025 | By IndusInd Bank

Loans are an essential financial tool, helping individuals meet diverse needs—from funding a wedding to handling an emergency. Among the various types of loans available, Signature Loans and Personal Loans are two popular options. While both are unsecured loans that don’t require collateral, they differ in eligibility criteria, interest rates, and usage flexibility.

Understanding the key differences between these loans can help you make an informed decision. In this guide, we will explore Signature Loans and Personal Loans in detail and discuss when each type is a better choice for your financial needs.

What is a Signature Loan?

A Signature Loan is a type of unsecured loan that requires only the borrower’s signature and a promise to repay the loan. Since no collateral is involved, the approval process is often based on the applicant’s credit score, income, and financial history.

Features of a Signature Loan:

• No Collateral Required – The loan is granted solely based on the borrower’s creditworthiness.
• Fixed Interest Rates – These loans generally come with fixed interest rates, ensuring predictable monthly payments.
• Shorter Loan Tenure – The repayment period is often shorter compared to traditional loans, ranging from a few months to a few years.
• Quick Approval Process – If you have a strong credit score, the loan approval can be fast and hassle-free.
• Restricted Usage – Some lenders may specify the purpose of the loan, such as medical emergencies, debt consolidation, or education expenses.

What is a Personal Loan?

A Personal Loan is another type of unsecured loan that provides borrowers with funds for various personal financial needs. Unlike a Signature Loan, Personal Loans offer more flexibility in terms of usage and repayment tenure.

Features of a Personal Loan:

• No Collateral Required – Similar to a Signature Loan, Personal Loans do not require any collateral.
• Higher Loan Amounts – Borrowers can avail higher loan amounts based on their income and credit profile.
• Flexible Interest Rates – Depending on the lender and the borrower’s profile, interest rates can be fixed or floating.
• Longer Repayment Tenure – The repayment period can range from 12 months to 5 years, making it more manageable for borrowers.
• No Restrictions on Usage – You can use a Personal Loan for any purpose, such as travel, home renovation, medical expenses, or even starting a small business.

Key Differences Between Signature Loan & Personal Loan

Both Signature Loans and Personal Loans are unsecured loans that do not require collateral. However, they differ in several aspects:

• Collateral: Neither loan type requires collateral, making them risk-free in terms of asset pledging.
• Loan Amount: Signature Loans typically offer lower loan amounts, while Personal Loans provide higher loan amounts based on creditworthiness and income.
• Interest Rate: Signature Loans usually have fixed interest rates, ensuring stable EMIs. In contrast, Personal Loans can have either fixed or floating interest rates, depending on the lender’s terms.
• Repayment Tenure: Signature Loans have a shorter repayment period, whereas Personal Loans come with longer tenures, providing more flexibility.
• Approval Timeline: Signature Loans are usually approved faster, as they rely on creditworthiness alone. Personal Loan approval time depends on the lender. For example, some leading lenders like IndusInd Bank offer instant approval on digital personal loans.
• Usage Restrictions: Signature Loans may have restrictions on usage, such as being limited to specific expenses (e.g., medical or education). In contrast, Personal Loans have no restrictions, allowing borrowers to use them for any purpose.

When to opt for a Signature Loan?

A Signature Loan is an ideal choice in the following scenarios:

• You Need a Small Loan Amount – If you need a relatively smaller amount and can repay it quickly, a Signature Loan is a good option.
• You Have a Strong Credit Score – These loans are approved primarily based on credit history. If you have a high credit score (750+), you may qualify for a Signature Loan with better terms.
• You Need Quick Funds – The approval process for a Signature Loan is usually faster than a traditional Personal Loan, making it suitable for urgent financial needs.
• You Want Fixed Interest Rates – If you prefer predictable monthly payments, a Signature Loan with a fixed interest rate can provide better financial stability.
• You Want to Avoid Secured Loans – If you don’t want to pledge any asset as collateral, a Signature Loan allows you to borrow without risking your property or savings.

When a Personal Loan is a Better Choice?

A Personal Loan is a better alternative in the following cases:

• You Need a Higher Loan Amount – If your financial requirement is large, such as home renovation or debt consolidation, a Personal Loan is the right choice.
• You Prefer a Longer Repayment Tenure – Personal Loans offer flexible repayment options, allowing you to repay in smaller EMIs over a longer period.
• You Have a Moderate Credit Score – Even if your credit score is average (650+), you can still qualify for a Personal Loan based on your income and employment status.
• You Want to Use the Loan for Any Purpose – Unlike Signature Loans, Personal Loans do not have any restrictions on usage, giving you complete financial flexibility.
• You Want the Option of Floating Interest Rates – If you believe that interest rates may drop in the future, opting for a floating-rate Personal Loan can be beneficial.

Conclusion

Both Signature Loans and Personal Loans serve as excellent financial solutions for borrowers looking for unsecured credit. However, the right choice depends on your specific needs, loan amount, repayment capacity, and credit profile.

• If you need a small loan quickly and have a strong credit score, a Signature Loan is a good option.
• If you require a higher loan amount with flexible repayment tenure, a Personal Loan is the better choice.

Before applying for any loan, compare offers from different banks and financial institutions to find the best interest rates and terms. Always ensure that you borrow responsibly and choose a loan that aligns with your financial goals.