Raising instant loan via loan app? Know these 7 terms before you apply

If you are planning to apply for a personal loan by downloading an app on your phone, you might not be already aware of the process and nuances which are too important to overlook. You might, for example, not know that your lender (lending app) is not a regulated entity just like a bank.

Similarly, lending apps may be different from the lending service provider. Let us peel some layers off and understand the process of raising personal loan in greater detail through seven key terms.

Here, we deconstruct the process by defining the 7 key terms relating to raising instant loans via a loan app.

Instant loan: 7 key terms to know

I. Digital lending: As the name suggests, digital lending refers to raising a loan via a digital platform. It could be an app or a web interface of a bank or non-banking financial corporation (NBFC).

II. Digital lending apps (DLAs):These refer to mobile or web-based applications with user interfaces that facilitate digital lending services. It could be on a standalone basis or as a part of the suite of functions of an application.

Digital ending apps include applications of the RE as well as those operated by lending service provider (LSP) engaged by a bank for extending any credit facilitation services in conformity with extant outsourcing guidelines issued by the Reserve Bank

III. Lending Service Provider (LSP): Lending service provider is an agent of a regulated entity such as a bank which carries out one or more of RE's digital lending functions with regards to customer acquisition, services incidental to underwriting and pricing, servicing, monitoring and recovery of specific loan on behalf of the RE.

IV. Regulated Entity (REs): An RE refers to a bank or NBFC, which is directly regulated by the RBI. For a number of lending functions, LSPs and DLAs are meant to join hands with an RE.

V. Key Facts statements (KFS): It comprises a statement of key facts of a loan agreement, typically in simple and easier to understand language. It is provided to the borrower in a standardised format.

VI. APR (annual percentage rate):This refers to the annual cost of credit to the borrower which includes interest rate, and all other charges associated with the credit facility.

VII. Credit information companies: Before granting approval for a loan, the lender invariably checks the credit score of borrowers through credit information maintained by credit information companies.

There are four Credit Information Companies authorised by RBI to collect credit information. These entities are CRIF High Mark, TransUnion CIBIL, Equifax and Experian.

Disclaimer: Mint has a tie-up with fintechs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.

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