A personal loan is an online finance solution that offers superior accessibility and disbursal times. Fast approval, speedy disbursal, and no collateral make it the most convenient credit instrument of choice for emergencies. These instant personal loans are available online and can be accessed anytime.
Digital lending is obtaining a loan via an electronic app or website, classified as a personal loan. These loans are delivered mainly through fintech businesses rather than banks, unlike traditional ones. Decades ago, banks and financial institutions outrivalled traditional moneylenders, and now, banks are being outpaced by NBFCs and FinTech.
The ease of acquiring instant financial solutions, within a few minutes with a 100% online dispersal guarantee with instant liquidity, offered by various financial institutions, has paved the path of glory for service providers. Hence, as a result, India’s gross national savings (GDS) as a % of the Gross Domestic Product (GDP) stood at 30.73% in 2020.
Things to remember for digital personal loans
When contemplating loans, it’s always important to know your spending limit and never overspend than that while taking out a loan. In addition, consumers should assess all costs before choosing the maximum range of personal loans they are willing to accept. Numerous costs, like processing, prepayment, and late payment fees, can be involved when borrowing a loan. Consider your lender’s countless expenses before applying for a loan to understand the cost accurately. It can aid in improved money management and decision-making about loan affordability. The amount of loan heavily influences one’s EMIs agreed. These EMIs should be lower than your salary/income so that you have some savings and adequate money for unexpected expenses or emergencies.
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Maintaining a solid credit score or credit history is critical when applying for personal loans. Based on your loan repayment history, your credit score, also known as your CIBIL score, shows your creditworthiness. The CIBIL score has a scale of 300–900, with a score of 750 or more in the excellent range.
Conversely, poor debt management is indicated by a lower credit score, which might lead to your loan application being declined or a higher interest rate being imposed. You can maintain a decent credit score by delivering on-time payments, automating your payments, reducing the number of credit cards you use, and ensuring to keep using old cards with a strong credit history.
Lender verification should always be a priority as financing may require you to give certain sensitive information that, if it lands into the wrong hands, can have significant consequences, including identity theft. Again, representative examples have been vetted and examined and are subject to RBI
Industry experts recommend watching out for any extensive RBI regulations, particularly those relating to digital lending. When dealing with digital lending or borrowing, practising prudence is an advisable call.
The lending trend – startups
Although banks form an inevitable part of the financial sector and provide several financing solutions to a substantial share of the global populace, many consumers are still underserved or wholly deprived. New-to-market lenders are identifying the gaps in lending coverage and are toiling hard to bridge them. Moreover, the new financial and non-financial institution is at ease in designing new offerings quickly and is unencumbered by legacy processes or infrastructure.
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The new entrants or fintech startups are actively managing credit-risk decisions and enabling technology by doing the advanced work required to establish a credit-decision platform where lenders- the fintech can act quickly while still taking the appropriate level of credit risk.
In the FY 2021–22, as per Fintech Association for Consumer Empowerment (FACE), fintech lending companies disbursed 2.66 crore loans worth Rs 18,000 crores, doubling their digital lending. The RBI found over 600 illicit lending applications RBI in 2021, which is more than half of all lending apps in India.
(By Shams Tabrej, Founder and CEO of Ezeepay)