The need for credit in our country has been very high because of the population and also the various sectors that are dependent on nature for earning their incomes. The pandemic increased the demand for credit further since the medical treatments and financial emergencies of individuals have risen to a large amount. When the pandemic hit the country, the processes followed by traditional lending institutions  became cumbersome. Thus,  people have resorted to digital lending where they can access instant credit from the lenders.

What is Digital Lending?

Digital lending is the innovation that has reformed the credit industry worldwide. It is basically explained as lending money online. This means that every process that is related to borrowing is done over the internet. The digital lending process incorporates a very high  degree of automation wherein the paperwork and physical evaluation are reduced to a minimum. The experience of digital borrowing has become seamless because of the automation process. Digital lending ensures that people can have access to credit instantly and with minimum or no paperwork involved.

The Evolution of the Fintech Industry

Fintech is the new innovation which has come to the rescue of people who are in dire emergencies to get loans or credit either for themselves or family members. It is expected that the industry will have a valuation of 350 billion dollars by the end of next year and with faster internet and cheaper smartphones, the borrowers who will not be able to repay are also availing credit from the industry.

How are Loans Processed?

In the digital age, securing loans has become very easy. The borrowers have to create profiles on the platforms and apply for a loan. The borrowers have to select the loan amount and tenure of the loan and the process is complete. The approval for these loans is provided instantly and the borrowers need not wait for the documents to be evaluated. The documents have to be uploaded on the platform. After the approval, the funds are transferred to the borrower's account instantly.

Impact on Credit Score

The traditional lending institutions rely a lot on the credit scores provided by credit bureaus for lending loans to individuals. Due to this reason, a lot of first-time borrowers who have no credit history find it difficult to borrow loans from institutions. 

The lenders using digital platforms have forgone this process of evaluating the credit scores and made the process of borrowing very easy. They do not rely on credit scores and are focused to provide small loans to multiple borrowers across the country. This practice has been affecting credit scores both positively and negatively. The positive impact is that the small borrowers can build a credit history and the negative impact is that the undeserved are getting access to loans very fast this may in turn be impacting the economy.

Benefits of Digital Lending

The approach used by digital lenders is very borrower-friendly. The traditional banks follow very rigid lending policies due to which the small loan borrowers do not get credit as they are not fitting the expectations of the banks or the lenders.

Minimum to no paperwork is one of the greatest advantages of this platform. The e-KYC has also brought a drastic reform in the credit industry as the borrowers need not upload the documents for evaluation repeatedly. This has also reduced the burden of the lenders in the industry

Multiple factors are evaluated in the traditional model of lending institutions such as tax returns, statements of account, credit profiles etc. With digitisation, the processes have been made simpler and the concept of social worth has been introduced which help in providing a report very easily for evaluation by the lenders 

Disadvantages of Digitisation

Digitisation has made every process very automated and thus the chance of errors in this process is also something we cannot miss upon. The internet is a place where misinformation can be provided and hence the lenders can be duped by the same.

The digitisation process has no point of contact wherein the borrower or lender can be assessed and thus issues like sharing of wrong information, miscommunication, misunderstanding, and so on can arise on both sides. 

Since availing credit is easy, the borrowers may apply for small amounts of loans very often. If they are not able to repay the loans, it affects the economy of the country. Such borrowers are not able to pay the minimum amounts that are due and the security or collateral cannot be confiscated by the lenders.

Future of Instant Loans

Instant loans have been bridging the gap for small credit borrowers in the industry. In the future, the applications providing instant credit will need to continuously evolve to make lending a secure process and also to provide more credit options to borrowers. The growing requirement for credit will need the platforms to provide a variety of instruments to the borrowers so that they can retain the customers.

FAQS Digital lending: New-Age Practice Of Applying For Instant Loans

1:What are the prerequisites for applying for an instant loan?

The general requirements before applying for an instant loan are 

  • The age of the individual should be at least 21 years
  • The source of income should be stable
  • The borrower should be an Indian resident
  • The e-KYC should be completed by the borrower

2:What are the names of some instant loan apps?

Some of the loan apps in India are

  • IndiaLends
  • Kreditbee
  • NIRA
  • Dhani

3:How does an instant loan work?

An instant loan is a short term loan with a high-interest rate and processing fee.