If you are read finance news, or are just generally clued into what’s happening in the world around you, you would have seen or heard such headlines as ‘digital lending is the new frontier’ or ‘the future lies in digital lending’ or something similar. Digital lending is nothing but the use of online technology and platforms to disburse loans from start to finish of the loan process, such as application to verification and final disbursal.
A recent report, FY 2017-18, showed that the personal loan share in the non-food bank credit pie amounted to nearly 25%, which was twice as much when compared to the share in 2016. This should come as no surprise to anyone, what with the rising aspirational levels and an increasingly younger consumer population, the millennials, who are not willing to wait too long to start living the life of their dreams.
Taking a personal loan is a shortcut to the lifestyle they aspire for, what with the advantages of such loans being that they are often unsecured (no collateral or guarantor required) and can be used for almost anything you want (except speculative activities). These loans also come with attractive interest rates and flexible repayment tenures. These personal loans are offered by not just banks but also by non-banking financial institutions (NBFI). So, what is the difference between these and digital lending platforms?
The appeal of digital lending platforms
There are over 500 million internet users in the country today. Millennials constitute about 350 million of the working-age demographic. When you combine the dependence of the average millennial on the internet for almost anything from shopping to networking with their natural aspiration for a better lifestyle than previous generations and their impatience with traditional banking methods that involve a lot of documentation and time, then you have the perfect recipe for the success of digital lending platforms.
The advantages of digital lending platforms
Digital lending platforms offer a whole host of benefits to users, whether they are millennials or not, self employed or salaried. Some of these are:
- Convenience: Digital lending platforms are easily accessible on nearly every device, whether it is a mobile phone, tablet, or laptop. These apps are easy to use and do not require any time at all for installation and to start running.
- Credit worthiness: Also called a credit score, this is a major factor among traditional lenders, but not that much of a factor in digital lending. This is especially useful for the younger crowd which typically tends to overspend on their credit cards and have a low credit score. Digital lending platforms offer their loans irrespective of credit score, but maybe with higher interest rates in order to mitigate their risk.
- Paperless documentation: The third advantage that works in the favour of digital lending platforms is that there is zero paperwork and less time required for anything, whether it is for the application or the verification or disbursal of the loan. Being able to upload documents directly from the phone and fill in the application form online itself cuts down the loan process time substantially.
- Low loan amounts: Unlike personal loans from traditional banks that offer loans starting at a minimum of Rs.50,000, with digital lending platforms you can get even Rs.5,000 as a loan. This comes in handy when you are faced with a financial emergency that requires cash but not so much as what can be borrowed from a bank. Loan amounts can go up to Rs.5 lakh on digital lending platforms.
- Flexible tenure: The repayment tenure is flexible, ranging from as short as two months to as long as 60 months, depending on the lender. This gives greater freedom of choice when it comes to paying back the loan and also more peace of mind. For those who want to close their loans faster, the short-term tenure is ideal, even if the interest may be higher. For those who are looking for more time to pay off the loan in a more relaxed way, the long-term tenure would be the best option.
The future of lending
With ‘fintech’ being the new buzzword, it is no wonder that digital lending’s popularity is growing by the day. Almost 15-18% of the 15 lakh customers that apply for personal loans do so online. There is no doubt that digital lending platforms draw in customers who have specific requirements and do not want to spend too much time or effort in getting a loan. When digital lending shortens the loan process from start to finish, with the possibility of getting a loan disbursed within just a few minutes or hours of applying for it, it can be said with surety that digital lending is here to stay and will revolutionize the loan market in India, leading to a win-win situation for both lenders and customers in the long run.