Do they suit you?
As banks and financial institutions ramp up their personal lending business at a time when business lending looks poor, they are turning to technology. Most of the banks have launched instant loans and with them the turnaround time for obtaining loans has decreased significantly. But a bank’s desperation for business shouldn’t lead you to take out a loan you don’t need. Here’s an overview of what’s on offer and what you need to know.
Instant loans are provided online, either on the company’s website or on the mobile app. “Over the last year we have seen an increase in online lending. Until last year it was around 13%; this year we have done around 20%. Over the next two years , I expect more than 50% of loans to be made online,” said Deepak Sharma, Executive Vice President and Head of Digital Initiatives, Kotak Mahindra Bank Ltd.
Some banks, when talking about instant loans, only give you instant approval and not the entire loan. Most so-called instant loans are personal loans because the document requirements for loan approval are much lower.
In the case of secured loans, banks can rely on the underlying asset, for example a house or a car, in the event of default. For unsecured loans, financial institutions rely primarily on the income statement and credit history of individuals.
Instant loans only work for those who have an existing relationship with a bank, either as a savings account holder or as a borrower. The bank already has details of the customer’s income and credit history, the main documents required for a personal loan.
To apply for “instant loans”, you need to log into your bank’s online banking service or the bank’s mobile app. You must have a pre-approved loan in your Net Banking app or page to qualify. However, to get a loan, you still need to fill in your information such as name, address, permanent account number (PAN) details and your income details.
If there is an error in any of the categories, the loan will not be disbursed. Since banks take your PAN details from a third party, if there is any inconsistency in the third party records, you will need to contact the bank.
Broadly speaking, there are two types of personal loan providers in the financial technology (fintech) category: companies that are non-bank financial companies (NBFCs) or work with an NBFC, and peer-to-peer lending. Some fintech companies allow you to take out loans on an app. Most currently offer personal loans and business loans.
To avail the loan, after downloading the app, you just need to provide your PAN details and bank statement. Since these companies need to understand your credit profile, they use information from official credit bureaus.
“Depending on the client’s profile, the loan can be refused or accepted online. Once accepted, the lender will contact the applicant. Since the borrower must provide a handwritten signature, the disbursement may take 2-3 days,” said Amit Sachdev, Co-Founder and COO, CoinTribe Technologies Pvt. ltd. as your location, your jobs and your online behavior.
Remember that fintech companies usually provide short-term loans and interest rates are also higher than bank loans. Banks and fintech companies charge you a processing fee.
In case of peer-to-peer (P2P) lending, you need to register with a P2P company and provide your information such as income, degree, and PAN. Interested lenders will contact you. P2P lending companies also review your credit profile with credit reporting companies.
Getting credit may seem easy, but unless you fill in all the required details correctly, it can take time. Since fast loans rely on technology, do not rule out problems when applying.
As you should do when taking out a loan, compare interest rates and fees such as processing fees and administrative fees. Don’t opt for a loan just because it is readily available. Make sure you have the ability to repay your loan.
Since some lenders rely on your social media behavior, be aware that digital footprint matters.
Only if you are comfortable disclosing details to these websites and apps should you try these products.
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