During the last decade, the advent of financial technology has massively disrupted the traditional lending process by making credit more accessible to a wider population through online loans. Online loans, in a broad sense, are the kind of loans that are not offered through a conventional banking system, but through an online lending system that acts as an alternative to a traditional bank and financial institutions. Online loans are made possible through a framework of Peer-to-Peer (P2P) lending, deemed as a sunrise sector in India’s financial landscape. In FY 2019-2021 alone, this sector has demonstrated a Y-o-Y growth of nearly 10 times, making the RBI take notice of this sector and create a separate category called P2P NBFC (Non-Banking Financial Company)
How do Online Loans Work?
Online loans are provided through a P2P lending process – a direct route of lending capital to individuals or businesses without the participation of any intermediary financial institution in the transaction. Instead, with the leverage of technology, a specialised, online platform exists as an intermediary matching the potential borrowers with the lenders. Most fintech lending companies offer unsecured online loans such as personal loans that are processed through a fairly simple process:
- A potential loan borrower fills in an online application on the online financial lending platform
- The platform evaluates the applicant’s risk and creditworthiness through his application and assigns an appropriate rate of interest
- Upon approval of the application, the application receives the available options based on his/her assigned rate of interest and credit score
- The applicant may choose from one of the given options and pay the monthly EMIs in time
When can you Borrow Online Loans?
Borrowing online loans like a personal loan through trustworthy digital financial platforms such as Finserv MARKETS can be highly beneficial in the following cases:
- Financial Emergency
Online loans such as unsecured personal loans are easy to apply with their hassle-free, online application process that does away with the need to visit the lender’s office in person. With online loans, you can now avail of instant funds required to meet any financial emergency without worrying about collateral.
- Low Rate of Interest and Payment Charges
Online loans come with lower rates of interest as compared to traditional banks. Besides the lower rate of interest of a personal loan, the prepayment and foreclosure charges are also lower, if not on par with the market standards.
- Quick Disbursal of Funds
As the application process is online, it shall not take ages for the lender to assess it. With a decent credit score and history, you can be sure to get the loan approved and funds disbursed into your bank account in a few hours rather than days.
- Security and Privacy
In the case of online loan applications, being concerned about the security and privacy of your personal and financial data, classified as sensitive information, is very real. Most fintech lenders now are equipped with secured data protocols and robust storage systems that guarantee the highest levels of protection to the sensitive information provided. So, do read the reviews and verify the ownership-cum-credibility of the reputed financial platforms before applying for an online loan.
When should you Avoid Taking Online Loans?
Online loans may not be a feasible option in all circumstances, and it is prudent to avoid applying for an online loan in the following situations:
- High Rate of Interest and FeesIf the online lender you approach is charging a higher rate of interest for a personal loan above the traditional lending figures, then it is advisable to avoid borrowing as it would turn out to be a damp squib, only putting an unwarranted burden on your pocket. Similarly, higher prepayment and foreclosure charges only increase the real cost of borrowing beyond permissible limits.
- No Credit Check
A decent credit score is mandatory for the borrower to fetch a decent loan amount. If any online lender is still offering the borrower a loan even with bad creditworthiness, then the borrower must figure out that it could be a lender’s compensation trap in the future.
- Advance Payment
Avoid borrowing from online lenders who demand any advance payment before sanctioning a loan. Any fees charged by genuine lenders are generally deducted from the sanctioned loan amount. Advance payments are a farce, and you could be robbed of your hard-earned money with nothing in return.
A Word of Caution
For availing of legitimate online loans, you need to scout for online lenders on the web. Go with reputed and reliable online financial platforms like Finserv MARKETS where you can not only experience a hassle-free online personal loan application process but also avail a reasonable rate of interest of personal loan with the quick disbursal of funds.
