How online personal loans are changing the whole financial industry?

Over the last few years, online personal loans are rapidly taking over the financial industry. The shift in consumer behaviour and government initiatives have made this loan popular among millennials. According to Reserve Bank of India data, overall digital lending increased more than twelvefold from 2017 to 2020. In terms of figures, the total digital disbursement in 2020 was Rs 1,41,821 crore, up from Rs 11,671 crore in 2017. Out of these disbursements, the majority are personal loans. 
 
If you are wondering how this loan is disrupting the financial industry, here's the article for you.
 

Top 3 Factors that Contributed to the Rise in Popularity of Online Personal Loans in India

 

1. Digitalisation of Economy

   For the last few years, the government has been emphasising on digitisation to improve economic growth. The factor not only contributed to the emergence of digital literacy but also encouraged both customers and lenders to adopt digital lending infrastructure. 
    

2. Coronavirus Pandemic

   The pandemic has changed our way of living in diverse ways. It forced us to go online for most of the things we need in our daily lives. Once forced to embrace digital, people slowly adopted online transactions, be it buying groceries, shopping clothes, or applying for personal loans. In fact, the pandemic saw a spike in demand for online personal loans as people rushed to pay for medical emergencies, education and home renovation loans, working capital shortages, etc. The ease, swiftness and convenience of getting a personal loan through an app, without the need to go through cumbersome processes like signing endless documents, standing in the queue, and interacting with bank officials has also worked in favour of online application of personal loans in India.
    

3. Wider Reach

   Traditional lenders have limited reach. They were unable to serve the population in areas where they did not have a branch. However, financial institutions have attempted to address this issue in recent years with online personal loans and have been successful to some extent. 

Also Read: A Step-by-step Guide to Getting Unsecured Personal Loans
 

Top 6 Ways Online Personal Loans are Transforming the Financial Sector

 

1. Easy Application Process

   Online personal loans are easy-to-apply. Even if this is your first loan, you can easily apply for it by following the steps mentioned on the lender's website. This service has eliminated a major roadblock that borrowers used to experience when they had to go to the lender in person and ask for assistance filling out the offline form.
    

2. Personalised Product

   Online personal loans are available in a customised form. You can find different loan products to meet your various financial needs. The most common ones are wedding loans, education loans, medical emergency loans, travel loans, and debt consolidation loans. Moreover, online loans offer you the flexibility to choose the repayment period that best suits your needs.
    
   Let's understand this with an example.
    
   Assume the lender offers this loan with a maximum repayment term of five years. But, as you know, short-term loans have higher EMIs. Whereas; choosing a longer tenure increases your EMI. In this case, the online lenders provide you with a personal loan EMI calculator. You can use it to determine the best term and EMI for you.
    

3. Quick Decisioning

   Personal loans are the best financial alternative during an emergency. And if the lender takes days to determine if you qualify for the loan, applying for it is pointless. However, as more financial institutions go digital, the time it takes to approve a loan is reduced dramatically. They use AI and ML algorithms to provide instant approval within minutes. 

4. Status Update

   Financial institutions also provide you with a status update facility. For example, if you use a lender's mobile-based app, you can easily check your loan application status. In addition, there is a feature that shows the number of EMIs paid up to date, as well as the EMI breakup structure, which shows how much you have paid for interest and how much you have paid for principal loan repayment.
    
   You can also set up notifications to keep yourself informed about new updates, special deals, and EMI due dates.
    

5. Contactless Loans

   The majority of financial institutions provide contactless digital loans in India. It is one of the main reasons that led to its popularity during the peak of the pandemic when the country was under strict lockdown, and even now.
    
   During your application process, the lender requires you to submit an online application and upload the softcopy of the documents. The entire verification process will be conducted digitally using cutting edge technologies. And after the successful verification of the same, the funds will be credited to your account. 
    

6. Transparency

   Financial organisations are making their lending process more transparent by leveraging the latest technologies and automated systems. Online loans are approved based on the borrower's merit. The entire application process follows a predefined set of instructions. And if you fail on any of the parameters, you will be notified right away.
    
   Additionally, there are no hidden clauses. All the details related to the various charges, repayment tenures, pre-closure conditions, etc., are available on the lender's website. You will also find clearly written eligibility criteria there. 
    
   If you are a first-time borrower who wants to learn more about how this loan works, the website has many blogs that can help.
    

Benefits of Online Personal Loans Over Offline Loans 

 

• Applying for an online loan gives you the opportunity to compare personal loans offered by several financial institutions.
   

• An online loan can be applied for from anywhere and at any time. However, this is not the case with traditional loans.

 
Well, if you want to understand the difference between these two approaches, go through the following blog. 
 
Also Read: Personal Loans: Applying Online vs Applying Offline
 

To Conclude:

Online personal loans have made the borrowing process easier. The products offered under these loans are more customer-centric. Moreover, you can get quick approvals, have the option to choose your EMI, and more. In addition, the online personal loan interest rates are also affordable provided that you have a steady income and a clear credit track record.