As banks and financial institutions build their retail lending business at a time when corporate lending looks poor, they are turning to technology. Most banks have launched instant loans and with it the turnaround time to get loans has come down drastically. But a bank’s desperation for business should not result in you taking a loan you do not need. Here is a look at what’s on offer and what you should know.
Loans from banks
Instant loans are provided online either on the company’s website or mobile app. “In the past 1 year, we have seen a jump in online loans. Till last year, it was around 13%; this year we did around 20%. In the next couple of years, I expect more than 50% of loans to happen online,” said Deepak Sharma, executive vice-president and head-digital initiatives, Kotak Mahindra Bank Ltd.
Some banks, when they say instant loans, give you only instant approval and not the entire loan. Most of the loans that are termed instant are personal loans because requirement of documents for loan approval are much lower.
In case of secured loans, banks can rely on the underlying asset, say, a house or a car, if there is a default. For unsecured loans, financial institutions rely primarily on individual’s income statement and credit history.
Instant loans work only for those who have an existing relationship with a bank either as a savings account holder or a borrower. The bank already has details of the customer’s income and credit history—the key documents required for a personal loan.
To apply for ‘instant loans’, you need to login to your bank’s Net banking facility or on the bank’s mobile app. You need to have a pre-approved loan in your app or Net banking page to avail it. However, to get a loan, you still need to fill your details such as name, address, permanent account number (PAN) details and income details.
In case there is an error in any of the categories, the loan will not be disbursed. Since banks take details of your PAN from a third party, if there is a mismatch in the third-party records, you will have to get in touch with the bank.
Loans from fintech firms
Broadly, there are two types of personal loan providers in the financial technology (fintech) category—companies that are non-banking finance companies (NBFCs) or work with an NBFC, and peer-to-peer lending. Some fintech companies allow you take loans on an app. Most currently provide personal loans and business loans.
To avail the loan, after you download 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 formal credit bureaus.
“Depending on the profile of the customer, the loan can get rejected or accepted online. Once accepted, the lender will get in touch with the applicant. Since the borrower needs to provide a wet signature, disbursal could take 2-3 days,” said Amit Sachdev, co-founder and chief operating officer, CoinTribe Technologies Pvt. Ltd. The fintech firm also looks at your social media details for information such as your location, jobs and online behaviour.
Remember that usually fintech companies give short-term loans and interest rates are also higher compared to bank loans.Both banks and fintech companies charge you a processing fee.
In case of peer-to-peer (P2P) lending, you have to register with a P2P company, and provide your details such as income, educational qualification and PAN. Interested lenders will contact you. P2P lending companies also look at your credit profile from credit bureau companies.
Things to know
Credit may look easy to get, but unless you provide all the required details correctly, it may take time. Since quick loans are run on technology, don’t rule out glitches while applying.
Like you should do while taking any loan, compare the interest rates and charges such as processing fee and administrative cost. Don’t opt for a loan just because it is easily available. Ensure that you have the ability to repay your loan.
Since some of the lenders rely on your social media behaviour, know that digital footprint is important.
Only if you are comfortable disclosing details to these websites and apps should you try these products