Common Concerns Regarding Online Personal Loan Applications
Online personal loans are the best bet when you need to manage a short-term expense without disturbing your regular salary. With the emergence of mobile finance ecosystem, personal loans are easily accessible to anyone who has a steady income source.
According to the RBI’s data on sectoral deployment of bank credit, personal loans account for 96% of new loans in 2018-19. In fact, the personal loan industry is going through an exponential growth phase in India. Apart from the traditional players in the banking sector, there are Fintech companies offering innovative lending options to consumers. A major example is the Peer-to-Peer (P2P) lending industry in India which enjoys a current market size of Rs.200 crore and projected to reach at $4-5 billion by 2023.
Availing a personal loan online is as easy as making coffee out of a coffee maker and that’s what tons of advertisements about personal loans try to convey. However, it may not be as easy as it sounds for a first-time borrower in a P2P platform. Many people feel hesitant to share sensitive information regarding their finance and stay doubtful about the credibility of the new-age online platforms and tools.
Listed below are the answers to the common queries of first-time borrowers. We hope it helps you if you are planning to apply for a personal loan on a digital platform.
COMMON QUERIES OF FIRST-TIME BORROWERS
- Data Protection and Security
With many data and privacy breaches occurring worldwide, security is obviously among the foremost concerns when dealing with online loan applications. You are required to submit applications that ask for sensitive financial information, and you might be worried about unauthorized access to this data. However, online portals are governed by laws and have a highly secured encryption in place. The information transfer uses strong security and safety protocols to safeguard your private data.
Furthermore, all fund transfers are direct bank-to-bank transfers carried out using escrow accounts operated by a trustee.
- Online Registration Process
Contrary to the popular belief, online registration is not complicated. The process is fairly simple. Fill in your basic information, pay the registration charges, and upload the necessary documents and information as per Know Your Customer (KYC) guidelines. If your profile seems fit for the P2P platform’s criteria upon identity and credit verification, then it is only a matter of a few hours for your loan to be approved.
- Probability of Loan Approval
First-time borrowers or those with a short credit history often have a low CIBIL score (Credit score that determines your loan eligibility). Various other categories of borrowers with a low CIBIL score are deemed “risky” by mainstream banks, thereby reducing the chances of loan approval. Bank loans are also restrictive as far as the type of loan is required.
However, digital lending platforms such as P2P platforms have their own credit rating model that incorporates various other criteria using hundreds of data points for credit underwriting. It assigns borrowers varying risk grades based on a more comprehensive benchmarking system and is therefore more inclusive. Thus, many borrowers whose loan applications are rejected by banks stand a chance to get a loan on these online platforms, albeit with a high-risk grade.
- Loan Transaction Charges and Hidden Charges
Most P2P operators charge a nominal document processing fee and government taxes as applicable. There is typically a loan-processing fee based on the size of loan and the borrower risk grade. There are no other charges, but there is a late payment fee if you fall behind your due date in payments. The most common concern borrowers might have is that of hidden charges, but the policies and fee structure are quite transparent. Information is laid out in black and white, and repayment schedule and detailed instructions are also offered.
- Prepayment Fine
If you decide to pay off your loan early, there is no need to fear of prepayment fines. Most P2P platforms allow pre-closure of the loan 3 months after loan disbursal without additional charges. If the borrower wants to pay off the loan before 3 months, then it can be done by paying off the balance interest to lenders for a period of three months from the disbursal date.
- Legal Regulation for P2P Platform
Are P2P lending platforms regulated or governed by RBI? In 2017, RBI announced that P2P lending companies will be registered as nonbanking financial companies (NBFCs) and announced guidelines to regulate P2P lending platforms. So before registering as a borrower or an investor on a P2P platform, one needs to verify if they are registered with the RBI as NBFC.
Registered companies need to follow the prudential norms set out by RBI regarding information security, disclosure of information, data privacy, reporting information back to credit bureaus and multiple other compliance criteria. This safeguards the interests of both investors and borrowers on the platform and ensures everything is above board.
Finally, there is a wealth of information available online on debt financing in the alternative space. Study the market and various vendors and go through the information available on the websites. An informed customer makes better decisions and fewer mistakes.