The number of emails, calls and messages offering pre-approved loans that many of us receive would imply that lenders are desperately scouting for borrowers. Of the several advantages of fintech, ease of credit has made borrowing possible for practically anything from vacations to weddings. “Data analytics offer efficient ways of analysing credit history and behaviour of a prospective borrower to make lending fast and easy on the digital platform,” says Rishi Mehra, CEO, Wishfin.com. Smartphones have made digital transactions seamless and by including a lending option, the ‘right now’ generation has it going for them like never before.
The speed, with which you are able to purchase on an e-commerce site, has been extended to the lending side. Today, loans are sanctioned and approved as soon as you start buying on several e-commerce websites, which tend to throw up EMI repayment options at the time of check-out. “Online processes have reduced overhead costs and lenders tend to have reduced or zero processing fees for online loans,” says Adhil Shetty, founder and CEO, BankBazaar. com. We are living in interesting times where, irrespective of what you are looking for, there is a loan available to meet that need.
Variety of loans
Kolkata-based, 32-year-old IT professional Diptangshu Hazra, took a personal loan of Rs 1.2 lakh for a two-year repayment period in 2016. “I had hit a financial low, due to a major health issues resulting in surgeries and hospitalisation,” he says. But, interestingly, the loan was used to not just tide over both unexpected as well as expected at home.
The Citibank app he uses raced through the loan processing and as his salary account was with the bank, working on his credit risk was not a bit problem. Nowadays, lenders have started offering loans to address the financial needs at the time of weddings, to travel or for any other reason. “At Tata Capital, we have created an array of niche offerings such as foreign travel loans, wedding loans and loans for cosmetic medical procedures. At present, these are in a nascent stage and comprise only 5-10 per cent of our personal loan portfolio,” says Govind Sankaranarayanan, chief operating officer – Retail Business and Housing Finance, Tata Capital.
Whatever be their names, these are all personal loans and fall under the unsecured loans category, as rarely do you have to provide any collateral or security against them. The driver for borrowers to go in for these loans is the affordable EMI that is available with these loans. However, be cautious with your enthusiasm, because if you land up servicing too many loans, multiple EMIs could put a huge financial strain on your finances.
Scout before you commit
Bengaluru–based Reuben Rato and Rashmi Khanna took a 14-year loan for their 3BHK apartment, which they will move into in September this year. “I had approached both SBI and HDFC but the latter was more flexible and even agreed to reduce the processing fee by half. Also we had no existing loan, so we could stretch our budget a bit and go in for an apartment of our choice,” he says. The easy availability of loans or the loan pushing by fintech companies should not be reasons for you to fall easy prey to a loan.
In the case of home loans, the rates are widely available to make an easy comparison, but that may not be the case of personal loans. While you could look up at loan comparison websites to make a shortlist of lenders, do not hold back on directly negotiating with lenders when it comes to borrowing.
There are several instances where one may just not qualify for a loan; fintechs are playing a big role for borrowers in this space, by structuring loans at differential costs to provide lending options to this set of people. “We undertake a comprehensive verification process based on personal, financial, professional and social information provided by registered borrowers, before extending a loan to them,” explains Rajat Gandhi, founder and CEO of P2P lending portal Faircent.com.
A P2P lending portal works in a way wherein lenders can make offers to fund borrower’s requirements which are accepted on first come, first served basis. Borrowers can seek to raise money from multiple lenders. A formal contract is signed by the lender and the borrower once they reach an agreement. The good news is that RBI has finalised P2P lending norms, which means there is nothing illegal or fishy about these loans. This format of lending is fast catching up, especially among the youth because many of them don’t have a credit score that will make them eligible for borrowing as soon as they start earning.
P2P follows very stringent verification process so that borrowers know that they are interacting with the most genuine lenders and are not going to be hounded by loan sharks. If the formal way to borrowing is not working for you, do not hesitate to try out a P2P. It is not only easy; it also allows you to test your real credit worthiness, especially for those who have been denied loans.
However, as tempting as it may seem, do not increase your EMI repayment at more than 40 per cent of your monthly income. As anything more than this, you never know when you may be treading dangerous territory. While it is great to use a loan to realise your financial dreams, do so by keeping a check on repayment; because the way with loans is that these are easy to avail, but difficult to repay if one does not closely follow the repayment schedule.