Technology has made its way into automation and has fostered the financial sector industry in India. This, in turn, has given the sector the power to grow and the opportunity to innovate.
The banking, money services and insurance (BFSI) sectors have particularly thrived with digital lending services transforming lending processes and disbursement methods. The fintech industry has brought much-needed change to 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 indicates that the fintech segment has huge growth potential and is expected to reach $150-160 billion by 2025 alone.
During the pandemic, digital lending has grown in popularity due to the nature of online application, disbursement and contactless functionality. Companies, as well as consumers, benefit from this advance. With digitization, the fintech sector has contributed enormously to transforming the complexity of these institutions.
Read also : Fintech Fraud Detection: How to Detect and Prevent Lending Fraud
While businesses know how they could attract their customers, users also need to be well equipped with what the entire digital lending industry has to offer.
Below are 5 things a consumer should know about digital lending:
1. Eligibility standards for borrowers:
Before applying for a loan, a consumer should check the eligibility criteria for digital loan applications. One has to check that they have to meet the standards set by the digital lenders, like if a consumer belongs to metro cities, they have to earn Rs. 18,000 per month, and for non-metro, they have to earn Rs. 15,000 per month and reside in India. If a consumer does not check these details carefully and is rejected again and again by lenders, this will also affect their CIBIL scores. According to RBI standards, lenders verify the CIBIL score of each loan/credit card applicant at the time of assessment. The CIBIL score ranges from 300 to 900, which determines a person’s creditworthiness.
Applicants must upload bank statements, proof of address and identity and photographs to apply for loans. Keeping these documents stored in your device helps you complete the online loan application process in minutes. Most digital lending platforms retrieve KYC details digitally through your original documents.
2. Plan your finances
A monthly budget should be established to rationalize expenses and avoid unwanted or superficial expenses. A planned budget encourages systematic living within means. On the other hand, unexpected expenses can increase the level of debt before you even realize what is happening.
Planning your repayment wisely is essential for any type of loan. Use an online personal loan (EMI) monthly payment calculator to find monthly payments by filling in the applicable interest rate and the amount required.
Before taking out loans, consumers know all the details of the EMI, such as how much they have to pay in a month and how many months they have to pay. This will help them understand and plan their budget accordingly. They also need to check whether they want to extend their repayment term, so that the lenders agree or not. If the EMI seems too high to repay comfortably, you will have the option of taking out a loan for a lower amount that falls within your repayment comfort zone.
3. Safety standards
Digital lending companies have become aware of security-related issues and are constantly striving to find solutions. They have found ways to tackle the same problem and gain the trust of their customers. The Payment Card Industry Data Security Standard (PCI DSS) enhances global payment account settings. Such measures improve the relationship between the digital lender and the customers.
Read also : Importance of Financial Wellness for Employees in a Post-COVID Workforce
4. Read the fine print
Before clicking “I accept” on each box, first read the terms and conditions carefully. This will prevent any sort of miscommunication that may occur in the future.
The customer must be informed in advance of the interest to be paid, the repayment date and the specific penalties for late payment and third party charges, if any. Also, they should know about prepayment or foreclosure fees, loan cancellation fees, fees for bounced EMIs, and miscellaneous legal fees.
Probably the most repeated yet most crucial piece of advice is to always read all terms and conditions carefully before signing any loan agreement online. This helps to avoid (mostly unpleasant) surprises later.
5. A good credit score
A credit score shows your creditworthiness as a loan applicant. Lenders learn about credit history via credit score, and only after that will they be ready to lend you money. Thanks to this, they anticipate the level of risk incurred.
Having a good credit score will help get high credit with low interest, while a low will mean high interest on loans taken out. Therefore, it is always best to maintain a healthy credit rating. This can be done by checking regularly 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 embracing new technologies for a very long time. And a fintech player like EarlySalary has the right range of products to jump-start your life portfolio and investment journey. It’s convenient, paperless and hassle-free. They provide new techniques to simplify the digital lending process and make customers’ lives comfortable.
The opinions expressed in this article are the personal opinion of Akshay MehrotraCEO and co-founder of EarlySalary.