Being the second most populous country in the world, India has always needed credit. But with the complex lending process and the reluctance of financial institutions to lend money to low or no credit scores, people had no choice but to borrow from friends or families.
As many white spaces were created, new-age lending platforms were born to meet the demand of millennials, mostly employed and self-employed, aged between 25 and 45. They had many aspirations and with the pandemic hitting the country, they also started to face many medical and financial emergencies.
New age lending platforms have simplified and boosted lending in India and provided micro-loans to vast underserved middle/low income segments. They were getting good reviews as they were 100% digital, had a fast online process, instant disbursement and low ticket values (as low as Rs. 1000).
If managed well, these small loans increase people‘s purchasing power. Let’s say a consumer wants to buy a laptop worth Rs. 50,000, but he only has Rs 40,000 left with him now. Now he has two options: settle for a laptop with a lower configuration or buy later as soon as he saves up the required sum. But with short-term personal loans coming into play, he can borrow Rs. 10,000 through a digital lending platform instantly and buy his favorite laptop. Just select the loan amount and term, upload the required documents and get the money instantly in their bank account.
So why were they gaining popularity and what benefits did they offer customers?
Builds a credit history
For new borrowers, this was a huge relief. In addition to meeting their day-to-day needs, these loans build a credit history, which then helped them become eligible for high-value, long-term loans that they might need in the future.
Applying for a loan has never been digital before. Instead, a lot of time and energy is wasted on paperwork. With today’s technology, new age lending platforms are providing loans in an all-digital format. All you need is a smartphone and an internet connection.
Fast online process
Remember how people used to plan ahead if they wanted to buy something? From the time the loan documents are filed to the time the loan is disbursed, it can take days or even weeks. Due to the paperwork, most of us despise the loan procedure.
But digital lending platforms only take a few minutes. You just need to download the app and register > upload the documents > choose the loan option and apply, and the funds will be transferred to your account.
With digital loan apps, there’s a minimal buffer time between your loan request and its disbursement, allowing you to borrow at your fingertips. The basic setup takes a few minutes to register and upload the documents needed for authentication. You can choose from the available options that meet your needs, apply easily and receive the funds in your bank account. The instant payout feature has spiked demand even more due to medical emergencies in the time of Covid.
Instant Renewal Loans
The ease of borrowing and repaying money through online platforms certainly saves energy and time. But, the smaller amount will automatically have a smaller repayment term which attracts buyers to re-borrow. Once you have repaid the borrowed amount, you can borrow a small loan again instantly and easily since you have already submitted all the required details and documents.
Better credit management
If we look through the lender’s glasses, digital disbursement has also helped them track and manage loans better. Companies were able to verify leads through AI and social media crawling. They were also able to minimize costs and risks through data analysis and geolocation.
Considering the above points, new age lending platforms have made it easier for people to seek loans anytime and anywhere. More and more players are entering the market and trying to grab the cake with differentiated features, speed, user experience, data encryption, and customization of services as per borrower requirements.
Important: One thing to keep in mind when taking out loans through digital lending apps is whether or not RBI-registered NBFCs process loans. This will save you from the trap of shell companies operating in an unregulated manner.
With the use of cash being minimized and the masses going cashless with digital payment methods, it would be interesting to observe the online lending and borrowing space.
The opinions expressed above are those of the author.
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