How small loans can help address personal problems

Good and bad times come periodically. When the tough times arrive, small loans can sometimes help address these problems. For instance, funds may be needed to cover unexpected expenses, the surprise arrival of guests or some sudden emergency that must be managed immediately, or maybe overdue bills where the service provider has threatened suspension of services if the bill is not paid within a day.

Making matters worse, people’s disposable incomes have been impacted because of delays in salaries or reimbursements owing to the pandemic. Whatever the scenario, small loans that can be availed instantly from new-age lenders can provide quick cash assistance and temporary relief that traditional loans cannot. Such small loans could be taken as micro or personal loans, depending on one’s circumstances and eligibility.

Diverse Uses and Fast Formalities

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

Such speedy loans are especially useful in times of crisis when timely access to funds can help save the day – or a person’s life, in case of a medical emergency. Time management becomes possible because the borrower or lender does not need to identify any assets and assess their value before the loan gets sanctioned. What’s more, in a crisis, a person has no time to run around fulfilling formalities that traditional loans entail, which makes instant loans most convenient.

Thereafter, borrowers could use this money to meet their emergency expenses or pay utility bills immediately, avoiding suspension of services or penal charges that can only exacerbate financial woes. For some micro-loan borrowers, swift disbursal is a big blessing because conventional credit may not be available to them if they lack proper credit history or have a low credit score. Moreover, banks prefer not to lend to such borrowers because small, short-tenure loans are not viable for big lenders.

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

But remember that the rate of interest on such instant personal loans, big or small, will be somewhat higher than housing or auto loans. This is primarily because these are unsecured loans, not backed by any collateral such as a house or a car. Yet, these loans are much cheaper than credit cards or some other kinds of loans.

Whatever the need, it is imperative to make timely EMI repayments even on small loans as failure to do so could incur penal charges while also impacting the borrower’s credit score. In future, this could affect the prospects of obtaining credit, which would be particularly troublesome during a crisis when funds are required urgently. As a result, it is essential to make all repayments in time.

Convenience and Speed

Significantly, these small but instant digital loans can be procured sitting right at home. Prospective borrowers only need to keep soft copies of KYC documents (such as Aadhaar, PAN Card, etc.) ready for uploading. Professional and personal details could also be quickly verified by the lender if salary certificates and the three months bank statements are handy. After these are uploaded and verified online, the approval can be granted within minutes.

Digital lenders are serving customers at exponential speeds since they use data analytics, artificial intelligence, machine learning and social media mining to crosscheck borrowers’ creditworthiness and reliability. Big data analytics limits the threat of delinquencies and frauds by gleaning consumer habits and allied insights from both direct and surrogate data. Additionally, online KYC verifications are the most cost-effective unlike legacy or manual means.

Before applying for any small-ticket loan, however, borrowers should check the lender’s eligibility criteria and only apply if they meet the norms. Also check the suitable loan tenures, which could vary from 15 days up to a few months or more, depending on the loan amount, lender, etc.

Meanwhile, the increase in small-ticket loans and the rise of tech platforms is corroborated by a joint report from TransUnion CIBIL and Google. The report notes that ticket sizes have shrunk – applicants prefer small loans of up to Rs 25,000 – while millennials form the bulk of retail loan borrowers. Furthermore, according to industry data, 49% of first-time retail credit borrowers were under 30 years and 70% of loan disbursals happened from smaller cities and towns.

No doubt, in these uncertain times, the certainty and quick disbursal of small-ticket loans are driving greater loan uptake, including from tier-2 cities and beyond.

by, Gaurav Jalan, CEO and Founder, mPokket