Digital lending is the process of offering loans that are requested, disbursed, and managed online. The process is designed to address the unmet credit demands of consumers who do not have access to loans through traditional banking channels that require collateral for loan approvals.
Today, banks and non-bank financial corporations (NBFCs) are using multiple digital channels to design and issue remote loans to consumers, who were previously underserved due to lack of awareness as well as the physical presence of financial institutions. in all geographic areas.
Credit companies are using increasingly digitized and accessible customer data to authenticate borrower information and verify credit scores using advanced analytics, artificial intelligence and machine learning tools to deliver digital loans. Credit obtained through a digital loan can be used to pay for all kinds of expenses, from small items like an ambitious appliance to large expenses like training courses or vacations.
Different digital loan models in India
P2P loan
P2P lending platforms act as a chain that directly connects investors and lenders where transfers and repayments are channeled through the platform. These platforms facilitate the provision of digital credit between multiple borrowers and lenders, usually playing a central role in the relationship between these parties.
Online loan
Online lenders are financial services companies that provide end-to-end digital lending products through websites or mobile apps. These lending platforms partner with financial institutions or lend on their own loan portfolios as they process loans digitally.
Technology-based loans
Technology lenders are traditional financial service providers who have digitized parts of the lending process, either internally or through partnerships. This has helped them expand their lending capabilities for consumers.
Mobile money loan
It is a partnership model where lenders work with mobile network operators to deliver mobile money loans to their customers by leveraging data from mobile phones for rating.
Marketplace lending platform
These platforms are digital platforms that create and match a borrower with many lenders for a set-up fee. The lender and the borrower then enter into a bilateral agreement. Loans in the market allow individuals as well as financial institutions to lend money through the platform, unlike P2P loans which only allow individuals to lend.
Supply chain loan
This is a non-cash digital loan for financing specific assets, financing invoices, or purchasing assets on a pay-as-you-go basis within a supply chain or distribution network. Supply chain loans can support businesses with credit that maximizes working capital for the stakeholders involved.
Digital Buy now Pay later
A deferred payment solution that allows customers to make purchases without upfront payment. This is an interest-free payment option where users can make payments within a specified time frame. It offers users the option of purchasing products and services that they may not be able to afford at the time, or that they would like to easily pay for in one go.
Things to know where to take a loan digitally
Before applying for a loan, it is important to know what the end goal is, how much money is needed, what all the products are on offer, and what is the ideal personal loan that fits the bill. Digital lenders can be traditional banks as well as NBFCs. It is important to compare loans, contact lenders, and research all the information you need.
Get the right digital loan application
The digital loan application process is web based or app based. Users must fill in their personal information according to government documents, such as name, PAN address or Aadhaar card and upload the necessary documents to complete the e-KYC.
To ensure a seamless app experience, users should ensure that there are no spelling errors, dates, typos when filling out the scanned forms and answering questions in these forms. It is important that the user’s data matches the supporting documents. This will eliminate verification discrepancies.
It is always a good idea to prepare the required account numbers and identification documents in advance.
Once the request is complete, consumers can download a receipt, take a screenshot, or save a copy of their submission for their records. To increase the chances of getting a loan, you need to be aware of your financial health and credit rating. Prompt loan repayments help maintain a good credit rating, thus increasing your chances of getting a new loan.
Choose your lender carefully
Once you have determined the type of loan required, it is important to choose a genuine digital lender and not fall for the bogus applications available online. This is your first checkpoint to authenticate the digital lender.
Android phone users should check if their chosen digital lending app is compliant with the Google Play Store guidelines. Google’s terms and conditions and services require financial companies to adhere to Reserve Bank of India (RBI) standards and be listed as legitimate lending platforms. IOS users should carefully read the app’s privacy thread, which provides details on the use and analysis of data to make an informed decision.
Avoid scams
Last year, the RBI said there were reports of people falling victim to digital loan scams to get quick, hassle-free loans.
Here are some common red flags for spotting digital loan scams:
- The lender is not interested in your credit score or payment history
- The lender requires a prepaid card
- The lender is not registered in the respective state
- The lender does not have a physical address
- The lender does not have a secure website
- Lender guarantees immediate approval and presses you to decide quickly
Evaluate Online Reviews
Clients who post to search engines like Google, as well as app stores like the Play Store, typically have the best insight into the experience of working with a lender. Additionally, there are several online platforms and forums, from Quora to Reddit, where people leave reviews or report scams. Customers have the option of going through these.
Check the transparency of credit rates, and permanence
Lenders charge different interest rates, which are governed by the risk policies of the lending institution. Before you apply, you should see that the lender has disclosed all charges explicitly in the application and provided a detailed breakdown of all charges.
The ideal repayment period for a small, short-term microloan should be two to six months. The fees should come in the form of interest rate, processing fees, prepayment charges, and other statutory fees which typically range between 10% and 35%, depending on the lender.
The ideal repayment period for a small, short-term microloan should be two to six months.
Be aware of payment fees, processing fees and penalties
Lenders may charge a processing fee, exclusive of applicable taxes, which is then deducted from the loan amount. Consumers should pay attention to the breaking of charges, in order to eliminate any surprises in the future. They should also check the repayment rules to determine if a loan can be repaid before its due date.
