Being the second-most populous country in the world, India always had the need for credit. But with the complex lending process and the unwillingness of financial institutions to lend money to low/absent credit scores, people were left with no choice but to borrow from friends or families.
Since there was a lot of white space created, the new-age lending platforms were born to serve the demand of millennials who were mostly salaried and self-employed, between 25-45 years of age. They had many aspirations, and with the pandemic hitting the country, they also started facing many medical and financial emergencies.
The new-age lending platforms simplified and boosted lending in India and provided micro-loans to the vast underserved middle/lower-income segments. They were getting good reviews because they were 100% digital, had a rapid online process, instant disbursal, and reduced ticket values (as low as Rs. 1000).
If managed properly, these small-ticket loans increased the purchasing power of people. Let’s say a consumer wants to buy a laptop worth Rs. 50,000, but he only has Rs 40,000 with him now. Now he has two options – to settle for a laptop with a lower configuration or buy later whenever he saves the required sum. But with short-term personal loans coming into the picture, he can borrow Rs. 10,000 through a digital lending platform instantly and buy his favourite laptop. All that is needed is selecting the loan amount and tenure, uploading the required documents, and getting the money instantly in his bank account.
So, why were they gaining popularity, and what advantages did they give to customers?
Builds credit history
For new borrowers, it came as a huge relief. Apart from supporting their day-to-day needs, these loans build a credit history, which later helped them become eligible for high-value, long-term loans they may require in the future.
Applying for a loan was never digital before. Instead, a lot of time and energy is wasted on paperwork. With today’s technology, new-age lending platforms give loans in an entirely digital format. All you need is a smartphone and internet connectivity.
Quick online process
Remember how people used to plan ahead of time if they wanted to buy something? From the time the loan papers are filed until the time the loan is disbursed, it can take days or even weeks. Because of the paperwork, most of us despise the loan procedure.
But the 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 lending apps, there is minimal buffer time between you applying for a loan and its disbursal, making borrowing just a tap away. The basic set-up takes a few minutes for registration & uploading the necessary documents for authentication. You can choose from the available options that suit your requirements, apply easily, and receive the funds in your bank account. The instant disbursal feature spiked the demand even higher due to medical emergencies in the Covid times.
Instant repeat 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 tenure that attracts the buyers for re-borrowing. Once you repay the borrowed amount, you can again borrow a small–ticket loan instantly and easily since you have already submitted all the required details and documents.
Better management of loans
If we look from the lender’s glasses, the digital disbursal has also aided them in better tracking and management of loans. Companies were able to verify prospects through AI and social media mining. They were also able to minimise costs and risks using data analytics and geo-tagging.
Considering the above-stated points, the new-age lending platforms made it very easy for people seeking loans anytime and anywhere. More and more players are entering the market and trying to grab the pie with differentiated features, speed, user experience, data encryption, and serve customization as per borrower requirements.
Important: One thing to keep in mind while taking out loans through digital lending apps is whether or not RBI-registered NBFCs are processing the loans. This will save you from the trap of shell companies operating in an unregulated manner.
With the use of cash being minimised and masses going cashless with digital payment methods, online lending and borrowing space would be interesting to observe.