Digital lending: What to remember while taking online personal loans

In recent years, digital lending has become one of the most prominent fintech concepts. It refers to using digital media to apply for, pay for, and manage loans.

Lenders are increasingly using digital data to assist them in making lending choices and establishing strategic consumer loyalty. The fintech industry will also deliver better services to benefit people in a faster, more cost-effective, and more appealing manner due to developments in digital financing, making it a very productive tool.

Although online personal loans are becoming increasingly popular, many customers still prefer traditional services. However, offline personal loans cannot match the experience of online ones in terms of convenience. As a result, city workers are increasingly turning to online personal loans. Most of the lenders are expanding their operations in other countries due to the rapid growth of digital marketplaces in India.

As a result, online personal loans are more convenient than traditional personal loans, and they are anticipated to become more rampant in the future.

However, there are a few things to remember while applying for online personal loans:

Analyse Carefully: Despite how easy digital loans are, it is critical to utilise them intelligently to better your financial status rather than merely purchasing things and then fighting to pay the EMIs. You should ask yourself, “How much do I need?” and “How much can I afford?” before applying for any loan.

Check with a partner-NBFC (Non-Banking Financial Company) to see if they are registered with the RBI. Almost all online lending applications use a non-bank financial entity to make loans. It’s vital to know which NBFCs are participating and to double-check details on the website of RBI.

Check the important terms and conditions such as interest rates, processing fees, prepayment charges/penalties, length, repayment method, and so forth, which are specified upfront.

Keep an eye out for hidden fees such as processing fees, prepayment penalties, foreclosure fees, GST, and other expenditures.

All of these fees aren’t required to be disclosed in advance, so read the contract carefully.

Check before transferring documents: Make sure the executive has the right identity documents to establish the lending institution’s validity during physical KYC verification. To avoid identity theft, wait until the verification is complete before revealing any vital papers.

Maintain a good credit score: Having a good credit score, in addition to your income, will assist you in obtaining a personal loan online with the interest rate and length you choose. Because a low credit score shows a poor payback history, banks will be hesitant to provide you with a loan. As a consequence, paying off all of your debts and overdue credit card bills is critical before applying for a new loan.

A borrower with several loan applications on their credit record is considered a high-risk candidate. Lenders are more likely to reject such borrowers’ loan applications; therefore, it’s best not to apply for many loans at once.

Say no to unauthorised sources: As the internet’s popularity has grown, so has the number of online cheaters and con artists. Non-verified loan applications that request personal information such as your address, PIN, and bank account number should be avoided.

During the Covid-19 pandemic, there was undoubtedly an increase in online fraud.

However, as long as the online lender is trustworthy, personal loans from online lenders are just as safe as loans from major banks.

A reputable lender, before processing your application, whether online or offline, would normally examine your credit, disclose the interest rates and terms, and ensure that the loan would not harm your finances.

(The writer is the chief executing officer and founder of PayMe India, a fintech digital lending company)

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