Technology has made a way into automation and fostered the financial sector industry in India. This, in turn, gave the sector power to grow and the opportunity to innovate.
The banking, monetary services, and insurance (BFSI) sectors particularly bloomed with digital lending services transforming lending processes and disbursement methods. The fintech industry has brought about the much-needed change in financial institutions and transformed the way people work.
There has been a shift in people adapting to digital channels to get instant, personalized, superior, and secure services. A study by Yourstory tells that the fintech segment has enormous growth potential and alone is expected to grow up to $150-160 billion by 2025.
During the pandemic, digital lending has gained popularity due to the nature of the online application, disbursal, and contactless feature. Businesses, as well as consumers, get benefits from this advancement. With digitalization, the fintech sector has tremendously helped in transforming the complexities of these institutions.
Also Read: Fraud Detection in Fintech: How to detect and prevent frauds in the lending industry
While the businesses know how they could attract their customers, the users as well should be well equipped with what all the digital lending sector provides them.
Below are 5 things that a consumer needs to know about digital lending:
1. Eligibility norms for borrowers:
Before applying for a loan, a consumer should check the eligibility criteria of digital lending apps. One should verify that they should come under standards that digital lenders set, like if a consumer belongs to metro cities, they must earn Rs. 18,000 per month, and for non-metro, they must earn Rs. 15,000 per month and be a resident of India. If a consumer will not check these details carefully and gets rejected from the lenders, again and again, it will affect their CIBIL scores as well. According to RBI norms, lenders check for the CIBIL score of every loan/credit card applicant at the time of evaluation. The CIBIL score ranges from 300 to 900, which decides a person’s creditworthiness.
Applicants need to upload bank statements, address and ID proof, and photographs for applying for loans. Keeping these documents stored in your device helps you complete the online loan application process within minutes. Most digital lending platforms fetch the KYC details digitally through your original documents.
2. Planning your finance
One should draw up a monthly budget to streamline the spending and avoid unwanted or superficial expenses. A planned budget encourages one to live systematically well within the means. On the other hand, unplanned expenditure can increase the debt levels even before you realize what’s happening.
Planning your repayment wisely is vital, be it any type of loan. Use an online personal loan monthly instalment (EMI) calculator to know the monthly instalments by filling in the applicable interest rate and required amount.
Before taking loans, consumers have every detail of EMI, like how much they need pay in a month and how many months they need to pay. It will help them to understand and plan their budget accordingly. They should also check if they want to extend their repayment tenure, so lenders agree to that or not. If the EMI seems too high to repay comfortably, you will have the option of taking a lower loan amount that falls within your comfort repayment zone.
3. Safety Standards
Digital lending companies have become conscious about the matters related to security and are continuously working towards finding solutions. They have been finding ways to tackle the same and gain the trust of their customers. The Payment Card Industry Data Security Standard (PCI DSS) enhances global payment account settings. Such measures uplift the relations between the digital lender and the customers.
Also Read: Importance of Financial Wellness to Employees in a Post-COVID Workforce
4. Read the fine print
Before clicking ‘I agree’ on every box, first read the terms and conditions carefully. It will prevent from any sort of miscommunication that can arise in the future.
The customer needs to be aware in advance about the interest payable, the repayment date and the specific penalties for late payment and any third-party charges, if these are applicable. Also, they need to know about the prepayment or foreclosure charges, loan cancellation charges, fees for bounced EMIs and sundry legal costs.
Probably the most repeated and yet the most crucial advice is to always read all the terms and conditions carefully before signing a loan agreement online. This helps prevent surprises (mostly nasty) later on.
5. A good credit scores
A credit score shows your creditworthiness as a loan seeker. Lenders get to know credit history via credit score, and only after that will they be ready to lend you money. Through this, they anticipate the level of risk involved.
Having a good credit score will help in getting high credit with a low-interest rate, while a weak one will mean a high-interest rate on loans taken. Hence it is always better to maintain a healthy credit score. This can be done by regularly checking and making sure it doesn’t fall below a certain level by paying EMIs on time and clearing credit card dues every month.
Financial institutions have been adopting new technologies for a very long time. And fintech player like EarlySalary offers the product range to start your life portfolio and your investment journey. It is convenient, paperless, and hassle-free. They provide new techniques to simplify the process of digital lending and makes the life of customers comfortable.
Views expressed in this article are the personal opinion of Akshay Mehrotra, CEO and Co-Founder at EarlySalary.
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