The growth of fintech in India has led to the adoption of the concept of digital lending. Digital lenders have made the loan application process easier by simplifying various eligibility criteria. Here are the key things you need to know before applying for a loan online.
Steps to apply for a loan online
Select the “good loan”
The right loan is the one that suits your needs. When applying for a loan, you must take into account the
- Interest rate
- Repayment Terms
- Additional charges
Emphasis should be placed not only on low interest rates and hassle-free repayment structures, but also on reading the fine print.
Use a monthly payment calculator (EMI)
The EMI calculator provided by online lending platforms has become a powerful tool for customers. It helps to understand and estimate the monthly repayment amount, payback time and the total amount that one can afford to pay. It also gives you a clear idea of how much loan you are entitled to, based on an individual’s monthly income and expenses i.e. overall cash flow.
Gather all the documents
Besides the loan application form, you need to put together a bunch of a few other documents to complete their Know Your Customer (KYC) process. The KYC process is a personal identification process and is mandatory for credit companies to get to know all of the customer’s details better.
Usually, the documents required for a personal loan include:
- Proof of income such as payslips or income tax returns
- Proof of age such as passport, Aadhaar card or birth certificate
- Proof of address such as an electricity bill, phone bill or ration card
- PAN card and proof of identity with photo
- If you are interested in a business loan, additional documents such as proof of business continuity, proof of ownership, goods and services tax (GST) filing details, and credit score may be required. .
Fill in the request form
To complete the loan application form, simply go to the lender’s website. Select the type of loan and click “Apply Now” at the bottom of the screen. An application form, requesting details such as full name, date of birth and contact details, among others, will appear. Once you have filled in all the necessary information, you can submit your application form.
What makes online loan application convenient
This was usually the tricky part where you expected to wait weeks and fill out several forms. When you apply online, the chance that this wait will get shorter is much higher. Most online lenders pride themselves on communicating with potential borrowers within 5-10 minutes of approaching. Often verification is performed immediately and subsequent approval information is transmitted. If approved, some lenders are able to disburse the loan amount within 72 hours.
Traditional banks and financial institutions require applicants to submit a long list of documents to consider granting a loan. Organizing all the paperwork can be tedious at times. Digital lending platforms eliminate this hassle and instead request documents that need to be submitted digitally or verified through real-time service API integrations. Customers must scan and download these documents to get their loans approved and have them verified through sophisticated fraud filters. This method works for digital savvy consumers.
A key difference between conventional lending institutions and technology-driven platforms is the flexibility of the amount of credit offered to borrowers. In general, a traditional financial firm considers any loan amount of less than INR 1 lakh to be risky. Fintech companies have based the valuation of unsecured loans, which refers to loans granted without any collateral, on the creditworthiness of their client. These loans range from INR 25,000 to INR 5 lakh or even more.
As customers are increasingly inclined to use digital lending platforms for convenient loans, the market has seen tremendous growth for these organizations. Even though the presence of a plethora of options tends to spoil your choice, people should be careful when selecting their digital lender. Before you make your decision, here are some
Precautions to take before applying for a loan online
Compare interest rates
Each lending company offers different interest rates, depending on the type of loan, the principal amount and the length of the loan. Before focusing on an option, borrowers should compare and assess to opt for the lowest rates. If you are unable to do this on your own, there are several websites that can help you find a loan provider that meets your needs.
Take note of all costs
There are many hidden costs associated with loans, which can hamper the borrower in the long run. It is essential to read the fine print and be aware of any other additional costs that one might incur. Some of these costs come in the form of processing fees, prepayment fees, or late payments. By knowing all of the other incidental charges that the lender has included, customers can estimate the expenses they need to manage over the life of their credit period.
With a sudden increase in the number of digital lending platforms, the risks of fraudulent activity have also increased. Before relying on an online lender, individuals should verify the legitimacy of the platform. Gimmick offers and bogus advertisements should be avoided.
For example, some lenders offer their borrowers a variable interest rate. These rates may seem low compared to others at first. However, they gradually increase to become such a large amount that it leads to unnecessary depletion of your financial resources. Some lenders even hide the fees in the fine print. So, a thorough check is essential before selecting your digital lending platform. Always opt for lenders who are transparent and clearly indicate their rates, fees and other formalities.
Read all documents carefully
Individuals should concentrate on reading the documents provided by the lender. These documents usually contain information such as terms and conditions, repayment rules, interest rates, additional charges and fees, among others. If you don’t understand what each of these conditions means, it could lead to unnecessary problems in the long run. Only lenders should be trusted who provide their borrowers with all essential information in detail and well in advance.
Avoid submitting your loan application to multiple lenders
Whenever a customer submits a loan application, the lender checks the borrower’s credit report to ensure their creditworthiness. Such inquiries are considered serious inquiries and are included in the applicant’s credit report. These additions can lower your credit score by several points. If more than one of these demands occur over a short period of time, they can have a negative impact on your overall creditworthiness.
To avoid such a situation, check online financial marketplaces to assess the best loan opportunity based on the borrower’s current score and capacity. Since credit score requests from these markets are considered indirect requests, they will not hamper your credit score.
The transition from offline loan application and approval to online loan application and approval has been driven largely by various technological disruptions. Technology has made the whole lending process more convenient, easy, transparent and trustworthy.