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Transformation of Personal Loans in India

, May 5, 2020, 0 Comments

personal-loans-transformation-marketexpress-inAvailing a loan, a decade back meant a couple of trips to the bank or a NBFC and submitting a few documents and probably a long wait before you could know if you were lucky enough to have your application approved. Or individuals relied on the unorganized sector like money lenders or pawn brokers to avail of a loan which meant exorbitant rates of interest and unnecessary harassment.

What are Personal Loans?

Before understanding the way personal loan scenario in India has changed, let us try to understand what exactly personal loans are and how do they differ from other loans.

In the current day credit market, there are different varieties of loans available like home loans, auto loans, education loans and then there are personal loans.

Personal loans are short-term unsecured loans, which means that there is no asset/collateral that needs to be offered as a security to avail the loan. Moreover, the eligibility conditions and documentation requirements to avail of a personal loan is much more relaxed in comparison to other loans making it one of the easiest loans to avail for any individual.

In addition, there is no end use purpose attached to a personal loan, which means that a personal loan can be used as per the needs of an applicant. It could be used to meet a medical emergency, to pay bills, to fund a vacation or even to pay off other debt.

Current Day Scenario- Personal Loans

When we think of personal loans today, it doesn’t come across as a loan that is difficult to avail. Personal loans are easily available through banks, Non-Banking Finance Companies or through new-age online lenders who utilize technology to make lending decisions (also known as fintech lenders).

Fintech lenders have come out with various kinds of loan offerings and are not limited to

  • Mini personal loans for short terms(6-8months) starting from 1k
  • Personal loans for higher amounts and longer tenure up to 60 months
  • Loans in the form of credit limit which can be used as and when required
  • Early salary loans
  • Pay Day loans

Advantages of Online Personal Loans

Online personal loans bring in a host of advantages to the applicants making it one of the preferred choices of availing a personal loan.

  • Easy Availability: Online personal loans are easily accessible either on mobile phones or through the websites of the lenders making it extremely convenient for borrowers.
  • Caters to a wider section of population: Unlike banks and other traditional lenders, fintech lenders allow personal loans to a wider section of the population including those who are new to credit, with lower credit scores, the self-employed and even to the low-income workers.
  • Faster disbursal: Online personal loans are quite fast when it comes to approval and disbursal of loans with some being approved in in a matter of 2mins. This makes it very easy for borrowers to avail a loan especially in times of emergency.
  • Can be availed from anywhere: These personal loans can be applied from any corner of the country without the need of you be physically present at the location of your bank.
  • Available on lower credit scores: With the introduction of loans from online lenders who take into account a variety of data points, in addition to the bureau scores to assess the creditworthiness of their applicants ensures credit is made available to those with lower credit scores and with no credit scores.
  • Customised offerings: Fintech loans do not come in a single size. They are mostly loans that are customized based on an individual’s credit assessment. The repayment terms and the rate of interest is also decided based on the data of the individual which means that a credit worthy borrower gets access to credit at a comparably lower rate of interest.
  • No need of maintaining a fixed relationship: When it comes to big-ticket loans like home loans, it is said that approaching your regular banker helps in getting good deals. However, with the convenience offered by online lenders, you could choose to approach a different lender as per your requirement. For Ex: To meet a month end crunch you could avail an early salary loan and when you need higher amounts, go in for an online loan with longer tenure.

The advent of fintech lenders have changed the landscape of personal loans in India.

In addition, changing attitudes of the population has ensured that availing of a loan is no longer considered a taboo thereby increasing the demand for personal loans. Also, the increased use of data analytics, artificial intelligence and machine learning are helping lenders make better lending decisions and avoiding defaults and NPAs.

Overall, personal loans have taken over as one of the widely availed loans in the country.