A judicious assessment by the borrower is always recommended to ensure his/her ability to make timely repayments, says Souparno Bagchi, COO, Balancehero India.
In an interview with MintGenie, Bagchi said that young professionals must exercise financial prudence and credit responsibility when opting for personal loans.
Edited Excerpts:
Q. New-age professionals are relying on instant loans to pay for their expenses. What factors do you think they must keep in mind before seeking such loans?
Personal loans have gained popularity among young professionals who seek to meet untimely or unforeseen financial needs. These loans serve as a helpful bridge/credit line. However, they must exercise financial prudence and credit responsibility when opting for them. They should also be conscious that they are opting for such loans from RBI-authorized responsible lenders. This would ensure transparency, fairness, and the assurance of consumer protection rights.
Purpose of loans and repayment assessment: The objective for seeking personal loans could vary from meeting emergency needs like medical needs, and life events to situations of addressing consumer buying needs by bridging the time gap between expense and income, e.g., immediate purchase need vs. month-end salary.
Either way, a judicious assessment by the borrower is always recommended to ensure his/her ability to make timely repayments. Seeking loans through false declarations for unauthorized activities and unqualified, high-risk financial schemes should be refrained from.
Before choosing the loan amount and repayment period, borrowers must also take their income level and monthly expenses into account. To prevent any financial stress and guarantee on-time payments without hurting other financial obligations, this is crucial.
Fees and charges: When thinking about taking out a loan, it's important to be aware of the associated fees and charges. By doing so, borrowers may make educated selections and get the loan that's ideal for their financial circumstances. Additionally, it's critical to confirm that they are aware of all charges upfront, that there are no hidden fees, and that the lender's fees adhere to RBI regulations in order to avoid being hit with any unforeseen or unjust fees.
As per the digital lending guidelines issued by the RBI, every authorized digital lender needs to disclose all-inclusive fees and charges in a standardized key fact statement. This has been a fantastic step forward to protect consumer interests, and borrowers should take full advantage of it.
Credibility and reputation of the lender: It’s critical to choose a lender who is reputable and credible and is authorized by the RBI in order to prevent any fraudulent activity. To choose the best lender who can meet their needs, borrowers must perform market research. To prevent misunderstandings or misinterpretations, it is essential to be informed of the charges and conditions related to the loan.
Q. Can you share demographic details (age group and region) from where people approach you the most for instant loans?
India has done an awesome job of bridging the digital divide, and we are taking the baton forward to bridge the credit divide in the country. The majority of our instant loan borrowers fall within the age bracket of 25-35 years. This tech-savvy and economically active population is more likely to adopt digital channels to apply for loans, and their income source makes them eligible for loans.
Regarding regional distribution, a significant portion of our small-ticket borrowers belongs to “Bharat”, i.e., Tier-2, Tier-3, and beyond. These areas witness high demand due to a large demographic segment that is underserved by traditional banking and financial institutions. We are proud to have established our significant business in more than 85 per cent of the total pin codes in India. Our objective is to make credit accessible to all individuals, regardless of their location or background.
Q. Can you share the guide to availing of instant loans?
Digital lending has become increasingly popular in India, making personal loans more accessible than ever before. However, there are several important considerations that borrowers should keep in mind before taking out a loan.
Determining your eligibility: Borrowers should determine their eligibility for a loan by carefully reviewing a lender's eligibility criteria. This can vary depending on factors such as income level, credit score, profession, and previous liabilities. It’s essential to ensure that a borrower's eligibility aligns with the lender's criteria before proceeding with the loan application.
The credibility of the lender: Borrowers should thoroughly research the credibility of the lender they are considering. To avoid fraudulent schemes, it's important to verify that the lender is authorized by the RBI. A quick online search can also reveal any compliance issues or unethical practices that the lender may have been involved in.
Checking all costs and terms: Borrowers must carefully review all the costs and terms associated with the loan to avoid any confusion or hidden charges. Interest rates, processing fees, and other charges can all impact the total cost of the loan. It's crucial to read and understand all the loan documents, FAQs, and terms provided by the lender to ensure an informed decision.
By keeping these important considerations in mind, borrowers can make an informed decision when taking out a digital loan and avoid falling into any financial traps or fraudulent schemes.
Q. Instant loans charge high-interest rates due to zero collateral. Under what circumstances do you think people must avail of such loans?
Many borrowers may require loans for various reasons, and we aim to serve those who are underserved or unserved by traditional financial institutions. Our focus is on providing unsecured loans while ensuring fair practices and methods in pricing and servicing loans. Our pricing is based on the premise of risk-based pricing which ensures that real credit needs are fulfilled at pricing that is directly proportional to the credit risk assessment of the borrower.
Our transparent loan approval process ensures that borrowers are fully informed about all charges and terms and conditions before the loan is disbursed. By bridging the credit divide in the country, we hope to contribute towards building a financially inclusive society.
Q. With so many lenders attracting customers with enticing loan apps, how should interested borrowers gauge the authenticity of these platforms?
India’s digital lending market is growing at a staggering pace and is expected to be worth $1.3 trillion by 2030, an over fourfold increase from the current value of $270 billion. As the sector continues to boom, more players will likely enter the market to capitalize on its potential. However, borrowers must exercise caution when choosing a digital lending platform, as not all are reliable. It is advisable to opt for a platform that is registered with either a bank or a non-banking financial company (NBFC) authorized by the RBI to ensure that the lender is legitimate and regulated.
Furthermore, potential borrowers should do their due diligence and research the credibility of the lender, checking for a presence in India, and ensuring that it abides by RBI regulations. Reviews on user-generated platforms like the App Store and Play Store can also provide useful insights. Additionally, it is crucial to choose a lender that provides customer support and has a valid website.
Finally, borrowers should carefully read and understand the terms and conditions before agreeing to them, and ensure that the lender has an efficient grievance redressal mechanism in place. By following these steps, borrowers can ensure they choose a trustworthy digital lending platform that best meets their credit needs.
Q. What explains the ubiquity of such personal loan apps and sites? Is it merely customer demand that drives this sector?
The increasing demand for credit among consumers, coupled with advancements in digital technology and the emergence of fintech companies, has contributed to the rise of personal loan apps and websites. Fintech companies have disrupted the traditional lending industry by leveraging technology to offer innovative financial products and services, and digital lending platforms use data analytics and machine learning algorithms to evaluate borrowers' creditworthiness and offer personalized loan products.
The growth of the digital lending sector can be attributed to a convergence of factors, including technological innovation, changing consumer behaviour, and the rise of fintech companies, in addition to customer demand.
Q. The penetration of this sector is high due to the availability of loans via apps. Do you think new-age companies will soon crowd the Tier-2 and Tier-3 markets in place of banks and traditional loan companies?
The digital lending sector has come a long way in bridging the gap in credit access for previously underserved segments, specifically in Tier-2 and Tier-3 cities. This growth can be attributed to several factors, including the rise in mobile penetration and greater awareness among consumers about financial services. Also, the convenience and accessibility offered by digital lending platforms through the Internet have been the driving factors behind this trend.
Despite this growth, traditional banks and financial institutions continue to play a crucial role in credit access, primarily due to their established presence, resources, and the trust they have built with their customers over time.
However, the emergence of new-age fintech companies has brought innovation in product design, customer experience, and distribution channels, giving them a competitive edge over traditional lenders. By leveraging technology, these companies have streamlined processes, reduced costs, and reached a wider audience that was previously underserved by banks and financial institutions.
Therefore, while new-age companies have disrupted the lending landscape and gained considerable traction in Tier-2 and Tier-3 cities, traditional lenders still hold a significant market share. The healthy competition between these two is likely to continue, which will benefit consumers by providing more accessible and affordable credit options, ultimately leading to greater financial inclusion in the country.
