Are they right for you?


As banks and financial institutions expand their retail 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 this the time to get the loans has decreased considerably. But a bank’s desperation for business shouldn’t lead you to take out a loan you don’t need. Here’s a look at what’s on offer and what you need to know.

Instant loans are provided online through the company’s website or mobile app. “Over the past year, we’ve seen an increase in online lending. Until last year, it was around 13%; this year we have done about 20%. Over the next two years, I expect over 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 they talk about instant loans, only give you instant approval and not the entire loan. Most of the so-called instant loans are personal loans because the documents required 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 mainly rely on the income statement and credit history of individuals.

Instant loans only work for those who already have a relationship with a bank as a savings account holder or borrower. The bank already has the information on the customer’s income and credit history, the main documents required for a personal loan.

To apply for “instant loans”, you must connect to your bank’s Net banking facility or to the bank’s mobile application. You must have a pre-approved loan in your application or your Net banking page to benefit from it. However, to get a loan, you still need to fill in your information such as name, address, Permanent Account Number (PAN), and income information.

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 a mismatch 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 corporations (NBFCs) or that work with an NBFC, and peer-to-peer loans. Some fintech companies allow you to take out loans on an app. Most currently offer personal loans and business loans.

To qualify for the loan, after downloading the application, all you need to do is provide your PAN details and your 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 wet signature, it may take 2-3 days for disbursement, ”said Amit Sachdev, co-founder and COO, CoinTribe Technologies Pvt. Ltd. The fintech company also examines your social media contact details for information such as your location, jobs, and online behavior.

Keep in mind that fintech companies usually give short-term loans and the 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 must register with a P2P company and provide your information such as your income, degree, and PAN. Interested lenders will contact you. P2P loan companies also review your credit profile with credit companies.

Credit may seem easy to obtain, but if you don’t provide all of the required details correctly, it can be time consuming. Since quick loans are technology-driven, don’t rule out problems when applying.

As you should when you take out a loan, compare interest rates and fees such as processing fees and administrative fees. Don’t go for a loan just because it’s readily available. Make sure that you have the capacity to repay your loan.

Since some of the lenders rely on your behavior on social media, be aware that the digital footprint is important.

Only if you are comfortable with disclosing information on these websites and apps, should you give these products a try.

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About Brandon A. Hood

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