Personal Loan, personal loan interest rates, credit score
How Small Loans Can Help Solve Personal Problems

Good times and bad times come periodically. When hard times come, small loans can sometimes help solve these problems. For example, funds may be needed to cover unforeseen expenses, the surprise arrival of guests or a sudden emergency that needs to be handled immediately, or perhaps overdue bills where the service provider has threatened to suspend services if the invoice is not paid during the day.

Worse still, people’s disposable incomes have been impacted due to delayed salaries or reimbursements due to the pandemic. Whatever the scenario, small loans that can be obtained instantly from new-age lenders can provide quick cash assistance and temporary relief that traditional loans cannot. These small loans can be contracted in the form of micro-loans or personal loans, depending on the situation and the eligibility of each one.

Various uses and quick formalities

If it is a micro loan or a small loan, the overall interest on these loans would be low due to its short duration. For loans taken out digitally, once the e-KYC rules are met, the amount is disbursed almost instantly or within hours, depending on the lender.

These quick loans are especially useful in times of crisis when quick access to funds can help save the day – or a person’s life, in the event of a medical emergency. Time management becomes possible because the borrower or lender does not need to identify assets and assess their value before the loan is sanctioned. Moreover, in times of crisis, a person does not have time to complete the formalities that traditional loans entail, which makes instant loans more convenient.

Thereafter, borrowers could use that money to meet emergency expenses or pay utility bills immediately, avoiding suspension of services or criminal charges that can only exacerbate financial hardship. For some micro-loan borrowers, quick disbursement is a great boon, as conventional credit may not be available to them if they do not have a proper credit history or have a low credit score. Moreover, banks prefer not to lend to these borrowers because small, short-term loans are not viable for large lenders.

Another advantage of personal loans taken for unforeseen needs is that they can be used for any requirement. Except to verify the borrower’s ability to repay the loan, lenders won’t ask too many questions, including why the loan is needed.

But remember that the interest rate on these instant personal loans, big or small, will be a bit higher than that of home or car loans. This is mainly because they are unsecured loans, not secured by collateral such as a house or a car. Yet these loans are much cheaper than credit cards or other types of loans.

Whatever the need, timely EMI repayments are imperative, even on small loans, as failure to do so could result in criminal penalties as well as impacting the lender’s credit rating. ‘borrower. In the future, this could affect the prospects of obtaining credit, which would be particularly troublesome in times of crisis when funds are urgently needed. Therefore, it is essential to make all repayments on time.

Convenience and speed

Significantly, these small but instant digital loans can be obtained from home. Prospective borrowers only need to keep electronic copies of KYC documents (such as Aadhaar, PAN Card, etc.) ready for download. Business and personal details could also be quickly verified by the lender if salary certificates and three-month bank statements are at hand. Once these are uploaded and verified online, approval can be granted within minutes.

Digital lenders serve their customers at exponential speeds as they use data analytics, artificial intelligence, machine learning, and social media mining to verify the creditworthiness and reliability of borrowers. Big data analytics limits the threat of chargebacks and fraud by gleaning consumer habits and related information from direct and proxy data. Moreover, online KYC verifications are the most cost effective unlike traditional or manual means.

Before applying for a small loan, however, borrowers should check the lender’s eligibility criteria and only apply if they meet the standards. Also check the appropriate loan terms, which can vary from 15 days to a few months or more, depending on the loan amount, lender, etc.

Meanwhile, the rise of small loans and the rise of technology platforms are corroborated by a joint report by TransUnion CIBIL and Google. The report notes that note sizes have shrunk – applicants prefer small loans of up to Rs 25,000 – while millennials make up the bulk of retail loan borrowers. Additionally, according to industry data, 49% of new retail credit borrowers were under 30 years old and 70% of loan disbursements came from small towns and cities.

There is no doubt that in these uncertain times, the certainty and rapid disbursement of small loans leads to greater loan acceptance, including in Tier 2 cities and beyond.

by, Gaurav Jalan, CEO and Founder, mPokket


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