The integration of technology helped financial institutions to develop the banking sector. Advanced technology has allowed lenders to provide digital lending services. This system allows lenders to save time and effort while creating a hassle-free process for you when planning to borrow money.
What is Digital Lending?
Digital lending is the process that allows you to apply for credit online. It has made loan applications faster and simpler than before. Due to the availability of smartphones, you can make just a few taps on its screen to complete the application process.
How Does Digital Lending Work?
Unlike the conventional process of lending where you have to visit the physical branch of the lender, digital lending requires a complete online application. Also, it reduces the time and effort of the lenders when verifying and approving your loan request.
For digital lending, you will need to fill up an online loan application with some basic information. These details include your name, monthly income, PAN number, etc. Once done, you will have to upload certain documents and then submit the form.
Then the loan request form is processed and if you meet the eligibility criteria of the lender, your loan is approved. Funds are usually disbursed within 24 hours of your approval. Additionally, the process of repayment is completely digital as well.
Also Read: Digital Lending has Become the Need of the Hour. Read How!
Benefits of Digital Lending
You can use the below points to learn about the different benefits of Digital Lending:
1. Quick Availability of Funds: Today, instant loans have gained a lot of popularity because people often need finances to cover their immediate fund requirements. Thus, digital lending enables banks and other financial institutions to sanction loans quickly in your bank to mitigate urgencies.
2. Hassle-Free Application: In case of traditional lending methods, you have to physically visit the branch and fill out and submit the application form. For digital lending, you hardly need 2 to 5 minutes to complete the loan application online. Thus, digital lending saves you a lot of time.
3. Easily Accessible: You can stay anywhere and apply for a loan digitally. This has made it easy for borrowers to take loans to meet their urgent financial needs. On a lender’s side, online loan applications help them to collect and verify information about the applicants easily. This has reduced and transformed the hectic process of document verification into a simple one.
Digital Lending vs Traditional Lending
The below table will help you understand the difference between digital and traditional lending:
| Characteristics |
Digital Lending | Traditional Lending |
|
Approval Speed | It is fast and applicants mostly receive funds within a few hours. |
It is slow and applicants may have to wait for days to weeks to access the funds. |
|
Convenience | More convenient, as you can fill out the application form from anywhere. |
Time-taking, as you need to visit the branch along with the necessary papers to apply for a loan. |
| Rate of Interest | It has low interest rates. | Interest rates are significantly higher. |
Why do MSMEs Prefer Digital Lending over Traditional Lending?
Digital lending platforms have gained massive popularity in the present fast-paced world as traditional lending consumes substantial time. Easy accessibility, substantial availability of funds, virtual KYC, and instant disbursements have helped digital lenders attract MSMEs.
- Lack of regulation gives rise to a lack of trust
Like any new business operation, this model of digital lending has many drawbacks. There have been several instances of unethical activities, especially during the pandemic, where unauthorised lenders provided loans to customers without any collateral and at exorbitant rates coupled with unreliable time limits to pay off these huge loans.
As a result, borrowers were forced to recall by lenders when they were unable to pay these loans. Such instances affect consumer confidence and ultimately harm the growth of fintech companies.
The Government of India is promoting digital credit growth in India in the following ways:
- Policies and norms
Multiple interventions by the Indian Government such as the federated consent architecture and the new payment ecosystem are proving to be the catalyst for digital lending. Recent activities regarding interest rates and liquidity regulations have been influential. This has helped FinTech and NBFCs to serve customers more efficiently.
- Video KYC (Know Your Customer)
During COVID-19, we all avoided social contact. Thus, the lack of field visits can affect the speed of KYC. So, RBI provided a solution by creating an Aadhaar card-based KYC over video calls. Video KYCs are cost-effective, efficient, and reliable for customer onboarding.
- Demonetisation
On 8 November 2016, India suddenly went into demonetisation. Some currency denominations were no longer of use. These circumstances revived the dormant digital payments culture in India.
The popularity of digital payments like FAS Tag for toll collection, IMPS, and UPI is one of the reasons for the emergence of digital loans in India. Indian fintech companies took advantage of the demonetization. The declining internet cost in India also went in favour of the fintech business model.
The following factors should be credited for the bright future of the digital loan market in India: -
- Efficient Processing
Lenders have been more efficient in decision-making by using advanced technology to examine your credibility via a single click. This helps in immediate decision-making regarding whether to approve a loan or not.
- High-End Metrics
The evolution of digital lending has been rapid. Data is processed at speed allowing lenders to have a better understanding of a borrower’s creditworthiness. Additionally, analytics help digital lending platforms make the best approval decisions.
- Integration of Technology
Companies offering digital lending services depend on strong integration of tech for seamless functioning. They utilise proper cloud-based connections with data-sourcing agencies and credit bureaus. They also have a system of internal data sharing between branches and employees helping them to collect comprehensive information.
- Customer-centric approach
The main ambition of India's digital loan market is to provide ease of documentation and processing. Millennials who are salaried or own a small business love this time-consuming and convenient experience of getting a loan.
Challenges of Digital Lending
The following points represent the biggest challenges of digital lending:
1. Assessment of Creditworthiness: India has a huge and dynamic market, making it extremely tough for lenders to evaluate the creditworthiness of a borrower.
2. Preventing Fraudulent Activities: Due to India’s huge population, the number of online applications is also high. Thus, advanced technology and robust measures are needed to avoid fraud.
Tips to Avoid Falling Prey to Fraud During Digital Lending
Here are some tips to avoid falling prey to fraud while availing of digital loans:
1. Not Sharing Sensitive Information: Financial institutions never ask for any sensitive information like bank details or Aadhaar numbers over call, SMS, WhatsApp, etc. So never disclose such details.
2. Careful Selection of Lenders: Carefully use banking websites as fraudsters create similar-looking fake websites with identical web addresses. Always check that the website starts with HTTPS and not HTTP.
3. Not Using Fake Apps: Scammers also create fake banking apps that look like authorized banking apps. Thus, always download these apps by scanning the QR code or from a trusted source.
4. Keeping Net banking Detail Safe: Never share your Net banking credentials such as login ID and password with anyone.
Also Read: Redefining Finance: Peer-to-Peer Lending Platforms
How to Apply for Loans Online?
You can refer to the steps explained below to apply for an online loan and experience the advanced world of digital lending:
Step 1: Find the ‘Apply Now’ button on the right top corner, and click on it.
Step 2: Fill up your online loan application form with your name, monthly net income, phone number, PAN number, etc.
Step 3: Upload the documents required and hit the ‘Submit’ button.
Upon meeting the eligibility criteria, your loan request will get approved, and funds will be disbursed.
To Conclude
Digital lending in India has proven to be a major factor in influencing the lending process. Poonawalla Fincorp has emerged as one of the biggest digital lending platforms, making the loan availing process simpler. You can now easily apply online for loans from Poonawalla Fincorp and meet your urgent financial needs.
Frequently Asked Questions
- What is the meaning of digital lending?
Digital lending is the process of getting loans online. You need to fill up an online loan application form with some personal details and meet the lender’s eligibility criteria to get approval for the loan.
- What are the benefits of digital lending for borrowers?
Digital lending has made it easy for borrowers to get loans. The process is simple, leading to faster applications and instant approval.