Shatter 5 Myths About Using Digital Loan Applications In India
Over the past few years, there has been a noticeable increase in the number of startups that have emerged in the booming fintech lending space. These fintech platforms offer instant loans, revolving lines of credit and other credit instruments for underbanked, unbanked and even new customers.
The reason for their rapid growth is the continuous service they provide. Fintech lenders provide loans ranging from Rs 5,000 to Rs 10,000,000 (upper limit varies). Instead of offering standardized offerings, they cater to the specific demands of different customer segments such as millennials, salaried employees, local business owners, retailers, credit card customers, new credit customers, low score desktop clients and many more.
They even introduced new credit options like EMI without a credit card, Buy Now Pay Later (BNPL), and e-commerce voucher financing that make shoppers’ lives easier, simultaneously transforming the concept of e-commerce as a whole. However, there are still apprehensions about using such digital lending platforms in India.
Here are some myths that are debunked so borrowers can make an informed decision.
Myth 1 – A high credit score profile is necessary for instant loans
An individual’s credit score provides all the information about their credit history. Traditional banks viewed it as the only decision-making factor when approving loans. However, digital lenders don’t believe in the same principle.
To determine the creditworthiness of a potential borrower, they check a multitude of factors such as income stability, employment status, account details, payment history, online shopping behavior and other social media profiles.
Unlike traditional financial institutions that rely primarily on credit scores, digital lenders can even extend credit facilities to a New Credit Customer (NTC). They take advantage of digital footprints and advanced machine learning (ML) capabilities to assess how much credit can be extended without making it unsustainable for the borrower to repay the same credit.
Myth 2 – Although instantaneous, these loans have a higher interest rate
The interest rate depends on the purpose of the loan. Personal loans and credit cards do not require collateral as a prerequisite, making them unsecured. If the borrower does not pay, the lender will have nothing to recoup the loss. Therefore, the interest rates are higher, ranging from 14 to 26 percent.
Home loans have a lower interest rate because the house itself is the collateral. Business loans are very flexible and have negotiable interest rates. And with the growing need for instant access to credit, many lending fintechs focused on lending to SMEs and MSMEs have developed new capabilities by connecting disparate data sources and systems through ready-to-integrate APIs and can easily provide a great line of credit.
Myth 3 – Instant loan apps are illegal or unauthorized
When it comes to money, borrowers need to make an informed decision. Before selecting the lender, he should verify its authenticity by checking whether or not the NBFC is registered with the RBI or not. Customers should opt for well-established platforms, follow standard regulations, and comply with regulatory guidelines.
While the complete eradication of fraudulent service providers is not possible, users should be assured that the majority of loaner apps that command good setup volume and good ratings on the PlayStore are backed by NBFCs registered by RBI.
In addition, several leading fintechs have teamed up to form an industry body called the Fintech Association for Consumer Empowerment (FACE) which encourages lenders to abide by its own code of conduct and all required guidelines issued by the RBI to protect the interests of consumers. consumers. Legitimate lenders are registered and follow all loan approval and collection procedures issued by the RBI.
For example, they perform the borrower’s standard e-KYC, request an OTP-based digital electronic signature on the agreements, and perform other due diligence steps before sanctioning the loan.
In addition, these loan applications promise a solid framework of privacy and data protection against the misuse of any personally identifiable information.
Myth 4 – These apps are insecure and leak / sell user data
All loan applications take the privacy guidelines issued by regulatory bodies very seriously. For them, the safety and security of customers is of paramount importance. Using various technological solutions, they ensure complete data protection and privacy.
For example, some loan applications use secure APIs with HTTPS encryption and other cryptographic means to transmit and store user data and create a robust environment for protected transactions. Always opt for applications that are transparent about their loan functions, policies and techniques.
Also, to avoid any mishap, users should read the fine print carefully as it contains a lot of details about how the app will use an individual’s data.
Myth 5 – Ineffective customer service
Fintech applications largely focus on consumer satisfaction. Since all of their transactions are done online, these lenders ensure a superior customer experience by providing WhatsApp and in-app chatbots. These robots are capable of natural language processing (NLP) and artificial intelligence (AI) to understand the context of requests and give the correct answer.
Bots are designed to support multiple Indian languages and allow human executives to come forward only if the query is complex and nuanced, making it a win-win situation for both lender and borrower.
The growth in the number of digital lending platforms marks the advent of a technological revolution in the financial services space. However, for this market segment to infiltrate the lives of individuals across the subcontinent, stronger and more stringent measures are needed, both from a legal and compliance perspective.
Borrowers should be vigilant and thorough in their research. Lenders, on the other hand, should be increasingly transparent and vocal about all terms and conditions.
Customer obsession and attention to detail are key to the success of this space, and as Jeff Bezos said, “the balance of power is shifting towards consumers and away from businesses. The right way to answer this if you are a business is to put the vast majority of your energy, attention, and money into creating a great product or service and put less into talking about it.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)