Rubique Tech

The evolution of technology over the years, coupled with the mobile/internet boom and social media explosion, had led to innovative new methods to access the credit score of applicants. Also, with the internet, there’s a new online lending segment in India which is giving rise to a new kind of challenge on sourcing credit score data. The positive side of this novel and innovative way of assessing and lending is that now customers with no prior credit score can now easily get loans!

Interestingly, that has been made possible by the effective use of Alternate Data and Machine Learning. To understand how the whole process works, let’s first understand Alternate Data and Machine Learning.

In recent years, the increase of data from smartphones, satellites, sensors, and websites has led to a huge amount of structured, semi-structured and unstructured data, generally known as big data. All these data has the potential to be mined for information and potentially help people make better data-driven decisions. In response to the demand for alternative data, some traditional research firms have turned themselves into comprehensive data providers, selling financial institutions data from non-traditional sources while also providing services to analyze that data.

Earlier, financial institutions and banks were dependent on traditional sources to find out whether the organization/person has creditworthiness. For that, the lenders considered such traditional factors as repayment history and credit score through document verification. But, with the evolution of technology, lending has shifted to modern and smarter forms to evaluate creditworthiness. And the technology includes an alternate date and machine learning – both of which have revolutionized the process of lending throughout the world.

The alternate data, which is also known as Big Data, is a digital form of evaluation of the financial history and habits of a particular organization or an individual. The sources of the financial data include UPS, QuickBooks, Amazon, Facebook and LinkedIn among other minor sources such as credit history, bank statement, restaurant visits, locations, debit card details etc.

Fintech companies analyze customers’ whole digital footprints in connection with the financial habits of the applicant. Other factors that are considered for the individual – job stability, bank balance, payment history, length of history, the amount owed, new credits and all types of credit used.

The Machine Learning is a technological innovation which is an application of artificial intelligence (AI) that provides systems with the ability to learn and improve from experience without being programmed automatically. That is, the machines ‘learn themselves’ and execute the tasks accordingly. In simpler words, Machine Learning focuses on the development of computer programs that can access data and use it to learn for ‘themselves’ and then, provide accurate data analysis.

The use of Alternative Data and Machine learning has made it easier for Fintech companies to approve loans. For example, under the verification process, if the person says he’s working in a particular company in a particular location but his phone number says otherwise, then the application is instantly rejected. Alternate Data and Machine Learning can also tell if the person is lying or has an authentic requirement and what’s his repayment capacity.

The lack of credit details for financial companies has led to the emergence of numerous analytics startups that use alternate data, artificial intelligence and machine learning on the ways to develop alternate data-based lending programs to offer personal loans. The companies may work independently or tie up with larger financial institutes and provide them with the required data to help them in the overall process of lending.

The Advantage of Alternate Lenders

One of the attractive features of getting credit from an independent alternative lender is how quickly lending decisions are made. An important advantage of Fintech lenders is they have access to complete non-traditional data sources that are not used by the traditional bank lenders. The fintech lenders have access to the minute details of the customer, including utility, phone, PayPal, Amazon, medical and insurance claims, social network and so forth.

The interesting part of the Fintech revolution is that now almost everyone can get a loan – even when they have no credit history – ranging from personal to business investment, provided the applicant has a positive financial behavior.

The use of the latest digital technologies, consumer data, cutting-edge analytics, self-learning, and automation – these factors are not only providing Indian lenders with a highly lucrative medium to maximize their capital and profits but are also minimizing financial risks through AD & ML, eventually providing a more hassle-free experience.

A personal loan is a savior when you want to get out of an immediate financial crisis. Personal loans are generally difficult to obtain compared to other types of loans as they demand strict qualification of requirements. It is the unsecured loan that is fixed for an individual obtained from the bank and is processed immediately.

Here are 7 things to keep in mind if you are thinking of borrowing a personal loan:

Watch out your finances: This is not a pre-requisite for personal loans but for all kinds of borrowings. Have a close watch at your finances. Before you opt for a personal loan think of your present as well as future finances. A personal loan does appear to be the dead-end solution for all your financial needs. But in reality, if the finances are not managed well then personal loans can turn down your finances in a way that is totally irreparable. Before signing out the final deal, have a clear cut idea about the loan amount and the rate of interest, this will give you a rough estimate of your EMI that you need to pay out every month. Then prepare a rough estimate of your monthly expenses. This will help you calculate if the new EMI can let you sustain along with the other monthly expenses.

Be wise with the decision of the final amount: Borrow what you need. Do not borrow more than what you require. It is always recommended to borrow the amount that is your necessity. Analyze the situation for what you need the loan. Then decide how many loans you would require to deal with that financial emergency. The bank may offer you a bigger amount of loan if they consider you to be of higher credit worth. However, do not take extra loan compared to your need. Higher the loan amount, higher will be the rate of interest and higher will be the debt. So be wise and borrow the amount that is needed for you. Do not go overboard with the loan amount.

Look out for affordable alternatives: The rate of interest is generally higher compared to the other loan types that are strongly backed by assets. Assets could be in the form of gold, vehicle, property or anything else. Gold loan or even the top-up home loans are the best alternatives as compared to the personal loan. The interest rate for such loans is much lesser as compared to the personal loan. Look out for options to get secured loans if you have an asset that could be used as collateral.

Bargain and get the best deal: The unsecured loans market has grown to be very competitive. There are many vendors willing to give unsecured loans. This just demands you to meet their basic criteria of securing a personal loan. Select the best lender and look out for lower rates that the lender can offer. Just do not keep the interest in mind. Focus on other fees and charges like the interest or penalty on late payment, prepayment penalty, cheque bounce charges, etc. Some banks offer lower interest rate but the other fees will be higher. In that case, better explore all the options available before you select the best lender.

Read the terms and conditions: It is the prime duty of the banks to disclose all the charges and fees that will be levied on you as you take a personal loan. Still, it is your prime duty to read the terms and conditions before you sign the deal. See all the conditions laid down and check how best it suits you. The hidden charges like the processing fee, loan cancellation, and foreclosure charges all should be clear before taking the loan. Do not just trust the verbal statements of the bank employees. Read the fine print and do an extensive research before making the final smart choice.

Look at your credit score: Credit score is the primary and the most important thing that the banks initially look for as you apply for the personal loan. As personal loans are not backed by any other asset it is the credit score which is of maximum significance. This information is the sole deciding factor of how reliable you are as a borrower and also how big risk you can be to them. Those people with a very good credit score procure loans easily and with a very good rate of interest.

A personal loan is for emergency only: Opt for a personal loan only for emergency situations. Non-payment of even a single EMI can affect your credit score negatively. This will make it difficult for you to get loans in the future. So, go for personal loans when you realize there are no other options.

A sufficient capital helps a business move forward in a positive direction which makes it flexible to take important financial decisions without having to tax their brains about this constraint which plagues most of the business nowadays. A secure business with a sufficient amount of working capital is said to be a healthy business which has a proper financial structure in place. A lack of adequate working capital can disturb plans which are of either short-term or long-term nature.

There should be sufficient cash inflow into the business to support its plans, and sometimes these business organisations take the help of certain financial institutions to help them to overcome any financial backlog that they face. These institutions lend the required amount to the business organisations which are known as loans against certain collateral which is kept as security and in return, the lender has to repay the loan along with the interest rate within the given period of time.

Now sometimes these loans are also given without any security which is held by them. These type of loans are known as Unsecured Loans. These type of loans don’t require any asset to be held up with the respective financial institution to avail the particular loan amount. They only require documents to support your claim that you will be able to repay the amount within the given period of time. These type of loans are sanctioned depending on the strength of your CIBIL Score. Apart from recovering from your Working Capital woes, these loans will help you in small business expansion but the small amount lent out a loan means that they can only be used for immediate expenses and can be invested for instant profits.

Considering the above facts, unsecured loans are becoming popular among the business owners keeping in mind the fact that they can be used for a number of purposes and you don’t have to risk any asset of yours for that loan. Let’s take a look at the number of facts which makes unsecured loans favourable for the businessmen nowadays.

Overcoming short-term business disturbances- Business owners face a lot of problem in the normal course of business and financial woes are one of them. Unsecured loans give them the confidence to fight these problems. They can easily avail these loans just on the production of their term sheet and can easily utilise those funds in overcoming those problems.

For example, take the case of GST and demonetization which caused major havoc in the industry and created major financial discrepancies. These businessmen were saved by the unsecured loans with the help of which they were able to stabilise the conditions. They were easily able to acquire funds for working capital and meeting short-term expenses.

Easy process in acquiring the loans- Acquiring these kinds of loans is the easiest which makes it the best kind of financial instrument which the businessmen can exercise. Businessmen need funds faster to meet their requirements and the traditional bank loans many days to get approved thus this kind of loan is more feasible for them to avail. The time taken by the traditional loans to get processed the motive of taking that loan.

These loans take a maximum of 72 hours to get disbursed. You just have to fill out some basic forms and support them with the necessary documents and get your required amount.

No collateral –This is probably one of the most important requisites for any kind of loan which is being availed by the businessmen. No one will want to risk his or her valuable assets for loans of short-term nature and of such low value. This makes the more loan more attractive, and thus it makes to the preferred financial instrument’s list of every businessman.

A plethora of options- Apart from being easily accessible, you get a number of options which you can choose from to support your cause. You can avail your loan on the credibility of your business plan and with the help of the concerned banker you can choose the right plan which will be compatible with your business type.

You can also opt for flexible repayment options which can be totally according to your compatibility. Repayment options can be adjusted with your income fluctuations, and you can pay accordingly. These features help the borrowers to operate in a better manner and not get tensed out over the fact that they will miss an installment payment. This type of loan allows to think freely and focus on things that matter.

Terms and conditions best suited for businessmen – These loans come with very less processing fees and pre-payment fees along with no hidden costs. The loans also enjoy an auto-update of the loan amount upon repayment. These features make it best suitable for businessmen.

This makes it fast and convenient for business owners to use.

Often businesses suffer losses due to unavailability of funds for operations, expansion, grabbing new opportunities. The financial institutes have a supply of funds which is not very close to the amount demanded in real. Thus, the financial institutes have various criteria to grill the entrepreneurs before funding them. Earlier the tradition financial institutes mainly used to check the financial record of the business and the future prospects. But with the advent of the Fintech, the scenario has become more regulated and strict as well. So, for availing a business loan from a financial institute, you need to consider the following factors.

What do you offer the financial institute? – A business project has many facets; a financial institution will only consider your project when it can generate money for them. Most of the loan applications are turned down due to unrealistic anticipations, analysis of future financials and illogical business plans. So, the first thing you need to be prudent is what you want to do. You need to have a clear idea of what business you are going to do, what projects you already have in your pipeline to show to the bank. You also need to make assumptions about expenses and incomes on a realistic ground not imaginary. The risks are also needed to be evaluated and based on that the profit generation capability of the project must be built. Often people applying for a business loan miss this ‘risk’ part which gets them into the risky zone of rejection by the financial institute.

Market knowledge and Financial Capacity: Your financial capacities will be judged by your financial status and credit history. This is to ensure that whether you are prudent enough to use the funds availed for business to generate income or not. In this, the market knowledge will help you to impress the bankers. As with the correct facts and figures of your business projection will imply your knowledge of using the funds rightly.

The processing time of business loans: The time of loan application processing depends on the financial institutes individually. But on an average, it takes around few weeks as they verify all the financials of the company, the business plan and also evaluate all the legal documents. In the case of Fintechs, the time duration is shorter due to all digital processing, and thus you can avail the loan faster. The stringent regulations of the traditional financial institutes increase the number of days for approval of the loan application. Once the loan application gets approved, it takes a few days to get the credit in your account.

How and when to send your application? – The time and day and the process of sending business loan applicationmatter a lot. You need to visit the traditional financial institute in person for submitting the business loan proposal. Thus you need to be aware of the dates when the financial institutes are closed, their working hours and when the managers are free to talk about your proposals. Most of the government financial institutes will make you sit for long hours before they will listen to your proposals. The best way to proceed nowadays is by applying using the online systems.

The requirement for collateral securities: The public sector banks mainly ask for collateral securities even if the business generates regular income. This is again because of their strict and rigid rules and regulations. But mostly in the case of business loans, as the amount is huge, collateral securities are required. There is also scope for hypothecation of the asset you purchase with the loan amount. You can also keep other assets as a mortgage for availing the business loan. But it is always better to keep the personal and business assets different so that in case of winding up, your personal assets are not affected.

Are there any penalties? – The financial institutes offer business loans against the certain rate of interest. Besides that, if you default to pay the EMIs on time, there are certain penalties to be charged on and above of the interest amount. No one wants to be in debt but at times, due to a certain situation like bad credit, loss in business, EMIs are missed. For this, you need to pay penalties, and before applying for business loans, you need to be aware of this. Often, there are financial institutes which charge penalties for prepayment of the loan amount as well. This is because of their loss of the amount of interest they anticipated to earn on your loan.

Getting familiar with the concept of personal loan

Personal loans are one of the easiest and cheapest options available in the market. You do not have to attach any sort of collateral security to get these loans. A good credit score makes it easy for you to get this loan and a clean past history of previous loans. The low-interest rates and the ease of repayment have made it very popular these days. You can get these loans for a period of not more than 5 years, and the interest rates are fixed and constant from the beginning. You can take these loans in case of financial emergencies, and you can take these loans to pay for college tuitions, wedding expenses, medical emergencies, and many other such scenarios. When you are applying for these loans, you do not need to define for what purpose you want the loan, thus not restricting you to only use the money for certain purposes.

Online personal loans

With great advancement in the sector of financial technology, it has become possible for you to apply and get a personal loan at low-interest rates by without even going to the bank. Many financial institutions give the option to get a personal loan online. You can apply for these loans online by following some easy steps and filling out basic information step about you and can get a loan without visiting the bank and having to interact with banking personnel. These online personal loans can be taken when you are in any sort of dire financial emergency and do not have the time to visit a bank or financial institution personally.

Fears related to online personal loans

Technology has not left any sphere of our lives untouched; you can now get home very easily by sitting in your home. But this ease also leads to a lot of doubts among the people. When it comes to applying for loans online, people become skeptical regarding the authenticity of these online portals and do not want to expose any sensitive information about them online. Some of the common concerns that you might have when applying for a personal loan are:

Fear of sensitive information being leaked: While applying for an online personal loan, you need to fill out an application that asks for sensitive information like your social security number. You might get worried that someone might access it online and use it against you. But this is not the case; these online portals are highly secured with military level encryption. Your information is transferred from one place to another in encryption packets, and an only authorized official of the bank or financial institution can access it.

Complicated procedure: People who are not tech savvy or have trouble going online live under the assumption that the procedures to get these loans must be long, grueling and intricate. But that is so not the case, applying online is much easier when compared to going to a bank and applying for a personal loan. You just have to fill out a simple form and upload a few documents, and you have the chance to be approved for a personal loan within a few working hours. In banks, you have to wait for hours and go to many officials before anyone listens to you and you might have to make many trips before your loan gets approved.

Unnecessary extra service charges: you might feel that these online service providers will levy extra charges. But this is not the case. The policies of these online personal loan providers are crystal clear, and no extra charges will be added to your account. They show all the expenses, and once your loan is approved, your money will be credited to your account without you having to go to the bank.

Who to contact for information: People think that these online portals do not have proper customer service. But so is such not case, these portals have 24X7 customer service support who are there to help you in every step, from filling the form to getting the application approved. Not only this but also you are kept updated with daily messages and e-mails. You can even track the status of your application online.

The rate of interest might be high: People are under the impression that online personal loans tend to have higher rates of interest. But on the other hand, going online is a better option as it allows you to compare the policies and rates of various financial institutions providing loans and allows you to get the best deal. It is time saving and effective, If you try comparing prices of banks physically, then you will take days before you can choose the best option, but going online can help you in deciding in a single day only.

Loan is debt. How can loan build your credit score? Is it really possible? Boosting and building your credit score is not possible overnight. It takes into account the past years of your financial behaviour and not your present only. But there are some ways how you can build and boost your credit score. One among that is availing a loan.

Loan is a sum of money that is given by a person (lender) to another person (borrower) who is in need of money with a deal that it has to be repaid. In loans, there is a contract made and signed between the two parties that a certain number of installments will be done for a fixed amount of the money to be paid to the lender by a particular date each and every month.

In general, credit is nothing but the trust that the money borrowed will be repaid. A good credit score is obtained if the money borrowed is paid within the stipulated time duration. Bad credit means that you are relatively unlikely that you would pay your loan back on time to the lender. A credit score is the numerical value of the credit history at a given point of time.

Using a loan to build credit score:

Here are some ways how a loan can help you build your credit score:

Get the best interest rate: When you are looking for a loan opt the one that offers very low-interest rate. This demands extensive research of the fees as well as the interest rates. Lower the interest rate more will be the money that you save. This will help you in systematic repaying of loans and building your credit score.

Do not apply for many loans: Applying for loans itself with many lenders creates a negative impact on your credit score. Do not this at the same time. This will cause a steep dip in your credit score. Just stick to one lender with low-interest rate and fees. This will help you in boosting your credit score and will not let it go down.

Read the terms and conditions: Before you finalize the loan deal read the terms and conditions laid down thoroughly. Look for any penalty charges as these can bring down your credit score. This increases the interest rate too or prolongs the loan duration long.

Borrow money as per your requirement: Just do not take loan since you have been approved of a huge amount. Take loan of the amount that you actually need. It is good to be safe by borrowing a smaller amount. This will give you a good credit score as the loan burden is less.

Pay your dues on time: The most influential aspect affecting credit score is the payment history. A single delayed payment can affect the credit score. If you know you will be delayed with payment then bring it to your lender’s notice so that the magnitude of damage can be reduced. Timely repayment of any kind of loan will build your credit score.

Do not opt for any other debts: As you repay your loans punctually your credit score improves. This might lead you to get more loans. Do not build more debts. This would land up in your credit score being in danger again. A high debt to credit ratio is dangerous for your credit score.

How loan builds the credit score?

Once you have been approved of a loan it is a good time for you to raise your credit scores. The best way to do so is by repaying the monthly payments punctually and on time. This loan payment affects your credit score significantly. As payment history itself is 3% off our entire credit score, repaying it on time is very essential to get the best credit score. Just one single missed single repayment can affect your credit score considerably. Timey repayment of loans will boost your credit score and make you the best borrower. In the same manner, late repayments affect your credit score and cause a dip in it.

Too much debt, especially loans can affect your credit score. It can have a negative impact. When your loan balance is higher than the original borrowed amount your credit score takes a major blow due to it. Being debt free is the best option to raise and boost your credit score.

A germinated business idea when shaped up and given a ground to grow needs adequate finance to water its roots for it to grow into a healthy full-fledged system. This idea can be anything, from an exotic service to an extraordinary never-seen-before product. But whatever it is, a well-placed financial system can only help it gain traction and gain the required momentum in the market to establish itself as a brand to reckon with.

The bigger question now that poses in front of any businessman is to decide on the channel of credit which they will take. A business needs a huge amount of investment, and definitely, they can’t support it on an individual level, and they have to take the help of different financial instruments provided by the various financial institutions. Among these financial instruments which are there for these business entities to go for, the most common one is Loan. It’s simply an amount which is lent by the lender, which in this case is the various Financial Institutions, to the borrower, the various business entities, in return of certain rate of interest along with the principal amount after a certain period. These Loan can be given against a certain asset which is held as collateral with the lender or can be given without it.

The loan which requires collateral is known as Secured Loans and which doesn’t require collateral is known as Unsecured Loan. Thus we defined two heads of loans which businessmen can opt for and fund the idea which they have been harping on to become something big. You should know which one of these two should a businessman go for given the requirements of the business entity whether it’s at a nascent stage or it’s an established one which requires funds for its expansion plans. You have to decide based on the requirement because both these loans are of two different type and provide two different perspectives to work on.

What is a Secured Loan?

As explained above, this requires to attach an asset as collateral with the lender to obtain that particular loan amount. The collateral which you have attached provides a medium of recovery for the lender which they can later sell it if by any chance the borrower turns out to be a defaulter. The lender is the owner of the property until the amount is repaid in total. In this case, the lenders are ready to give loans to a high amount at a low rate of interest due to fewer risks since an asset of the borrower is involved in the credit lending process.

What is an Unsecured Loan?

As explained above, the thing that differentiates it from the Unsecured Loan category is the collateral that is attached to the amount that a borrower will be opting for. These loans can also be considered as short-term loans with a high rate of interest. The loan is provided by the creditworthiness of the business owner.

Why should a businessman go for an Unsecured Loan?

Now let us make your task easier. If you are a businessman, then you should go for the unsecured type which will give you a lot of flexibility options to work on and which will help your business grow with this option of finance that you opt for.

Unsecured loans are the best kind of business loan that a business can opt for because it doesn’t involve any collateral which you have to hold up with the lender and risk an asset in case of your becoming insolvent. Business at a nascent stage definitely shouldn’t go for this kind of loan as risking an asset in a no revenue position can be dangerous.

These kinds of the loan have a fast processing period which enables you to obtain the funds within no time and thus helps you with going about things at a faster rate. There are no stringent repayment rules which bind this kind of loan which comes with flexible repayment options.

These kinds of loans have also given a push to other financial institutions such as NBFCs to gain ground which has provided an alternate source other than the conventional sources, i.e. the banks. They are lending loans at an attractive rate of interest which will help a business entity to grow.

Digital Lending is also an option if you are going for this kind of loan which involves the conduct of all the activities for attaining a loan to be done on the virtual mode. You can easily attain a loan sitting at your home without you having to going to your respective lender. So things are much easier if you go for this type of loan.

It will be sheer ignorance if we undermine the invaluable role of the SME sector in the Indian economy. That said, it’s unfortunate that most SMEs fail to get enough funds and function in an unstable manner, making them vulnerable to the financial ups and downs.

Such grim scenario forces most of the SMEs to turn towards the unorganized lending sector, which is both costly and complex in its structure.

Looking at the brighter side of things, FinTech is finding various avenues to make things easier for SMEs. One such avenue is digital lending, meaning, one can get loans through online channels and mobile apps.

It’s an exciting development. So, let’s try to understand it in detail.

How is digital lending changing the way SMEs are financed?

FinTech firms are clearly focused on changing the landscape of the lending market for SMEs. They are bringing in technology to speed up the lending process, that includes application, verification, and approval. As SME Loans, Personal Loans, and Credit Cards can now be availed from a common source, and it has become a lot easier for companies to access the lending products.

Digitization has made the process more transparent, seamless, and secure, and with the easy availability of cash, SMEs can drive their business towards growth. Robust and user-friendly apps, as well as online platforms like Rupeeland, IndiaLends, MoneyTap, and Rubique, has made the process of getting personal loans hassle-free for borrowers.

Diversification of lending market

The lending market is diversifying and is now catering to the financial needs of different segments, thereby benefiting the Indian economy. To give you an idea of this expansion in terms of numbers, the lending industry has achieved an annual growth rate of 20%.

For people, Personal Loans, Credit Cards, and Consumer Durable Loans have become popular routes for funding expeditions, weddings, medical exigencies etc.

The transition from offline lending methods to digital lending platforms

Before machine learning and digital platforms became popular, the process of lending was tedious and back-breaking. With the digitization of data, the documentation process has become a lot more convenient. This is a significant development for bootstrapped businesses for it allows for quick verification as well as approval.

This has triggered a wave of innovation, and the credit industry is trying to find newer ways to streamline the loan application process. They are tapping the potential of chatbots, interactive web interfaces, and mobile apps so that they can efficiently cater to consumer preferences.

The rise of NBFCs

The value of Non-Banking Finance Companies (NBFCs) has ascended, and they have become the go-to option for people who need lower ticker loans. Such companies are gradually eclipsing the traditional lending institutions with a market share of 49%. The key contributors to NBFC’s share are SMEs.

While public sector banks are getting overwhelmed under the stress of mounting debts, the rise of NBFCs can be attributed to their constantly evolving models. Digital India Initiative has also helped NBFCs to garner the attention of millennials. This has made them a critical cog in the wheel of India’s finance sector.

The exponential growth of Unsecured personal loans

The borrowing capacity of the corporate sector is on the decline, and there is stiff competition in the home and auto loan industry. In such a scenario, banks have no other option but to roll out unsecured personal loans to achieve credit growth. And they are doing exactly that. As long as the outstanding credit doesn’t surpass the spends, banks don’t have to worry much in this regard, as there is a lesser chance of a customer defaulting.

The overall advantage to SMEs

Without a shadow of a doubt, SMEs are reaping the maximum benefits from digital lending. As the lending process is simplified, SMEs don’t need to toil for getting business loans, and they can now focus more on the resource utilisation, which wasn’t the case earlier. There is no lengthy application form, tedious paperwork, and arduous approval process to go through.

What lies in the future?

Digital lending is a quintessential example of how technology enables comfort. Just think about it. Businesses can now apply for a loan, anytime, and from anywhere. Credit Card and Personal Loan applications have been revamped for good, thereby ensuring that the right customer avail funds at the right time.

With the smartphone market expanding continuously, and more people preferring online platforms for all kinds of transactions, digital lending can be a game changer. For starters, SME loans are being availed through online platforms, without much human intervention.

If you want to buy a property and are planning to take a loan for it, then taking a home loan is the best option. But however, each loan has its own pros and cons and hence you carefully need to analyze the risks involved before applying for the loan. It may seem that all banks are eager to lend a loan, but getting it sanctioned can be a tedious task. Hence, here are eight things you need to know about applying for a home loan.

1. Balanced credit score: Banks usually consider the consumer’s credit score very seriously. Credit scores give the bank an idea of your payment history, outstanding debts, and credit history, to name a few. Based on this, the bank decided whether or not you are eligible for the loan. Hence, paying bills on time and maintaining a good credit score is quite essential, since that decides your eligibility for the loan.

2. Loan history: Banks consider several things before sanctioning a loan to the customer. If you have existing loans or debts, then that might be a problem. This is so because, banks are careful about the loans or liabilities you have; so, if you have the higher number of dependants then chances of getting loan reduces further.

3. Employment status: Your employment status and income play a key role while applying for a loan. People with stable income find it easier to get a loan in comparison to self-employed individuals. Fixed income ensures that you can pay an EMI every month, whereas, for a self-employed person, the assurance is quite low.

4. Read the fine print: Always read the fine print- a home loan agreement, because there are some underlying details that you must know. For example, you may think that you will be a defaulter if you fail to pay the EMI; however, that is not the case. If the borrower dies or is involved in any civil or criminal offense, then the bank marks that person as a defaulter. Apart from this, some banks also have a clause that entitles them to demand additional security along with your loan amount in case property prices fall. If you fail to pay up, you’ll be marked as a defaulter. Hence, reading the agreement before taking the loan is necessary.

5. Bank judges the property and gives you a loan accordingly: You may know the exact value of your property but will not get the loan as per that value. Because every bank has its own experts, and real estate index to judge the price of the property. Depending on that price, banks offer loan up to 80 percent of its value.

6. You can switch banks: Most of us think that we have to stick with one bank forever, but that’s not the case always. In some cases, if you get a better deal from some other bank, then you can always switch. However, you have to bear the additional cost of the processing fee, which can be negotiated.

7. Documents required: Having all the documents at the place is essential. Tax returns, proof of income, bank statement, credit history, and photo ID are some documents that you need. However, documents differ from bank to bank.

8. Loan tenure: Your monthly EMI is calculated based on the amount of your home loan. So if the tenure of your home loan is longer, then you end up paying lower EMI, and if it’s shorter, then you end up paying higher EMI. Not only this, but the interest also depends on the tenure. So, the higher the tenure, higher is the total interest paid, and vice-versa. Hence, it is essential to calculate your EMIs and tenures before applying for a loan.

9. Type of Interest rate: Interest rate directly impacts the EMIs you pay. Hence you need to know the difference between the fixed rate home loan and floating rate home loan. So if you choose a fixed-rate home loan, the EMIs remain the same over the tenure. But in the case of a floating rate home loan, the interest rate is determined by the base rates and floating rate. In this case, the EMI changes as per the rates.

10. The fixed rate is not always fixed: While sanctioning the loan, the bank tells you that the loan will be sanctioned at a fixed rate. But if you read the fine print you will find a clause which states that the rate is subject to revision. This clause differs from bank to bank and is invoked when the rate of interest increases. Hence, the borrowers feel cheated when the rate of interest increases suddenly. So reading the agreement is very important.

Is personal loan better or credit card? The answer actually depends on what you are buying and how you are going to pay it back?

When you are out to buy something big and you don’t have the necessary cash-in-hand, you are left with the only option of taking a loan. Now you want to swipe your credit card and take a credit card loan or go for a more traditional option of personal loan, that depends on your requirement and your situation. To choose between the two, you have to draw comparisons as both of them have their pros and cons.

The one that saves you money, in the long run, is the best financial solution for you.

Personal Loan

A personal loan is a form of an unsecured loan and comes in a lump sum. You have a pre-determined amount of time to repay it. There is interest attached to it and on top that you may have to incur application fees, pre-payment fees, and even origination fees.

Pros:

Interest rates are lower than credit cards

There is a fixed end date to the debt

In the long term, it is cheaper

You do not have the option to overspend

Cons

You have the debt for minimum a year

Repayment cannot be flexible

The application is a long process

When is personal loan suitable?

For making big purchases like a car or home renovation

Borrowing a big amount for a long period of time

Large debt consolidations

Credit Card Loan

Loan on credit card is the fastest form of unsecured credit. There is no need for documentation as it is a pre-approved loan. Theoretically, credit card loans can last a lifetime. There is a limit to how much you can borrow monthly and you have to make a minimum monthly payment. But you get rewards and facilities like balance transfer and grace period without interest.

Pros

You get to spend money immediately

There are rewards included

It provides a constant cash flow

No interest on the grace period

Cons

The interest rates are usually higher

Monthly payment needs only minimum amount which means the interest can accrue indefinitely

When is credit card loan suitable?

When you want to make smaller purchases

Debt consolidations are smaller

For everyday shopping

Personal loan or credit card loan – which option is right for you?

There is a definite answer to this question. It changes according to the situation. But you can ask these questions to decide:

1) Why do you need the funds?

If you need a loan for a big one-time purchase like a car, then personal is the best option. But if you need constant access to credit like on a daily basis, then the credit card is the suitable option.

2) How will you repay?

As mentioned above, credit cards have an ongoing period while personal loans come with a particular end date. So if you think you are going to be tempted with the credit lines stretching indistinctively, you should go for a personal loan. Personal loans have a strict repayment schedule which has to be followed. If you are not disciplined with your payments, then the unstructured system of credit card loan can prove to be a fatal debt after some time.

3) What is your debt consolidation scene?

If you are consolidating debts, then you need to consider your options properly. You need to review how much debt you have and what is the ratio of personal loans and credit card loans. Make sure you are able to consolidate all your accounts. There are some providers which let you transfer the loan amount to credit card and vice versa.

4) How much you want to borrow?

The credit limit of credit cards is way different than that of personal loans. Personal loans let you borrow more amount of money. But credit cards have stricter eligibility criteria.

How to compare the two?

1) Interest rates

Generally, personal loans have lesser interest rates. Of course, before making the final decision you have to include other fees also.

2) Fees

Personal loans have application fees, origination fees and many other. But credit cards only have an annual fee, if at all. It depends upon your eligibility. High-end credit cards mostly don’t have any fees at all.

3) Financial condition

You need to consider your personal financial situation also. Are you disciplined in your spending and budgeting? If you regulate your spending, a credit card is good. But if you need structure to repay your debt, then a personal loan is better.

Conclusion

Buying a house needs you take many decisions which can affect your life for years or even decades. Today, getting a home loan is easy but choosing the best options is a difficult task. Moreover, choosing a fixed interest rate over a floating interest rate is a very tough choice as you apply for a home loan.

Fixed rate home loans:

Home loans are generally for long tenures. In a fixed rate loan, the interest rate of the home loan is fixed. The rate is fixed while taking the loan and will remain for the entire repayment term. The home loan will have no change in the interest rate even at the worst economic conditions. There are variants to this. In that case, the interest rate can be fixed for certain years like 2, 3 or even 10 years. This can be reset by the lender at any time.

Fixed interest home loans give a clearer picture to the borrower of how to manage finances from the beginning. This will allow smooth repayment of the loan as the obligations are well known to the borrower as it fixed interest rate home loan.

Benefits of fixed interest home loan:

High inflation phase: Fixed interest home loan is of maximum benefit when the market is at a high peak. In times of high inflation, the fixed interest home loan is very beneficial.

Financial security: The fixed rate home loans provide maximum financial security to the borrower. This is because of the EMI amount as well as the loan tenure if fixed in advance. The interest rate is protected and there is no effect on it even if the interest rates increase.

The option to select the least interest rate among lenders is another added benefit.

Fixed interest home loans are most suited for those customers who do not intend to take any risk with their finances.

These loans give the borrower confidence to plan their budget and finances systematically.

Disadvantages of fixed rate home loan:

The most important disadvantage of a fixed rate home loan is that the interest rate is higher as compared to the floating interest rate. It is about 1- 2.5 percentage points higher than the floating rate.

The other main drawback fixed interest rate is, even if the interest rates drop down the customer has no option to alter the interest rate. The interest rates remain fixed and cannot be lowered even by paying the conversion fees.

In the case of pre-payment or pre-closure, penalty on fixed interest rate home loans is higher. The interest rates are not related to the market rates and the future commitment draws a huge penalty fee as compared to the floating interest rates.

In true sense, the interest rate of fixed rate home loan is not fixed. The borrower has an option to revise the interest rate once in every 3 or 5 years.

Floating rate home loans:

The floating rate home loan is also termed as an adjustable rate home loan. The rate of interest changes as the market conditions keep changing. These are mainly attached to a base rate and have in addition a floating part. Hence, if the base rate fluctuates the floating component also will vary.

Benefits of floating interest home loan:

The floating rate home loan is the best when the market is volatile. Hence during low inflation periods, the floating rate of home loan is preferred.

The rate of interest for floating home loan is 1% to 1.5% lower at the time of availing as compared to the fixed rate home loan.

The good thing is there is no pre-payment penalty with floating rate home loans.

With a floating rate home loan, there is an option to reduce the interest rate or increase the discount. This can be done easily by paying the conversion fees.

Disadvantages of floating rate home loan:

The floating rate home loans are highly volatile. If there is any fluctuation in the base rate it can lead to high EMI or even increase in the tenure of the home loan, though EMI remains the same.

The interest rate calculation is by a non-transparent method.

The interest rate variation among lenders is very high.

The options of low-interest rate lenders are minimum.

Fixed versus floating rate home loans:

Credit Card balance can have a direct adverse effect on credit score. For somebody who has consistently been a defaulter, his credit score can go for a toss in no time due to the outstanding unpaid bills. Alternatively, on maintaining a disciplined payment habit, the credit score may improve drastically leading to healthy creditworthiness for future loan approvals.

Leading financial experts suggest lowering one’s credit card utilization ratio to brace up the credit scores. Credit utilization refers to the amount of available credit being used at any given time. It can be calculated by dividing the total credit card balances by the total credit card limits. The ensuing percentage is the part used by most of the credit scoring models because it’s often linked to lending risk. It is recommended to keep the overall credit card utilization below 30%. To the creditors, this gives out a positive impression of the customer’s responsible credit usage, to a great extent.

Owning a credit card reflects well on the credit score: The credit scoring system looks for a combination of both revolving debts such as credit cards with variable interest rates, and installment debt such as car/ house loans that have a fixed Equated Monthly Instalment (EMI) over a set period of time. However, it is not mandatory to own a credit card. One can also build a good credit score via other types of loans like mortgages, etc.

Opening credit card accounts: The lending bank’s first job is to make a credit check on the applicant before issuing him the credit card. Therefore, one’s priority should be to maintain healthy creditworthiness. However, it is advisable that one must abstain from dropping in too many applications at several banks around the same time. The reason being, a large number of credit enquiries in a short time can lower one’s credit score drastically.  This goes on to show that such people are credit hungry and may end up in financial trouble in the long run. Also, one must wait before applying for another hefty credit/ loan transaction to avoid a sharp dip in the credit score.

Closing credit card accounts: Instead of closing down unutilized accounts, experts suggest keeping the oldest loan account active if possible. Same applies for credit cards also where the borrower should hold on to it to keep himself active in the scoring record. Closing such an account leads to an increase in the credit utilization ratio because of less available credits. A strong repayment track record of such a bank account helps in building a faith with the lenders who see it as a sign of customer reliability. This acts as a driving force behind credit score progress. In case the borrower is spendthrift, instead of closing the account permanently, a good idea would be to simply cut up the card or put it away out of sight.

Delay in credit card payments: It is of paramount significance that all credit cards must be cleared off any outstanding dues. This is one of the key factors whereby the credit score can be improved. Financial discipline and healthy credit behavior are what lenders look for in their clients. Even if the customer diligently pays off his monthly outstanding but ends up as a defaulter once or twice, such unpaid balance can hold back the overall credit score of the customer. Therefore, for a score boost, always pay the bills on time.

Keep updated knowledge: Every situation is unique! The way somebody uses his credit card may not work for another. Ideally, one must analyze the factors which might lead to his credit score fall and find a solution for it accordingly. For instance, defaulting or regular late payments can be rectified if his knowledge of the credit account summary stays up-to-date every month.

A credit score is a way to know where one’s credit status lies at a given point in time. It carries a summary of every applied loan and other debt accounts in the form of the account balance, payment history; and the number of years the account has been active. All these factors add on to the credit score. Each factor carries its percentage ratio in the credit score sheet.

Payment history adds up to 35% of the score

Level of debt adds up to 30% of the score

The span of credit history is 15% of the score

Number of inquiries and mix of credit carry 10% each

Maintain a good credit balance: Although universally, everybody would agree that the best credit balance is “NULL”; it does sound ambiguous. Keeping the credit balance to a 30% threshold and paying off all outstanding dues before the account statement closing date does sound achievable. It is on that date when the banks issue the credit card report to the credit bureaus like CIBIL; etc.

On maxing out the credit cards regularly: Experts advise to stay within the peripheral of a 30% credit limit. Maxing out regularly would reflect on the credit reports even if the customer pays it down before the statement is generated. The report would list the “high balance: until the bank reports a new lower balance to the bureau. Since it is not mentioned on the report when the balance was paid, many lenders are misled into picking up a wrong notion about credit indiscipline of the customer. Future communications with lenders would mean thorough scrutiny of these reports resulting in the delay in loan approval.

The financial world is undergoing a rapid transformation with an ever-increasing number of banks and financial institutions turning to technology when at a time, the corporate lending scenario looks abysmal. Banking related processes have now become speedier and paperless. Most of the banks have propelled their functioning with the launch of instant loans thereby drastically cutting down the loan approval turnaround time.

Nowadays, instant loans are so well-known that most loan seekers lean towards them over the customary personal loans. Undeniably, instant loans, by and large, aim to lessen the borrower’s liabilities and save an enormous amount of time for lenders and borrowers alike.

An instant loan can be very convenient, but your thorough awareness of them is a mandatory prerequisite. Presently, you can avail a credit on hotfoot – paperless and pre-approved. However, a bank’s recklessness for attracting business should not compel you to take a loan you do not require. Here is a glance at what is on the shelf and seven things you should be cognizant of prior to opting for an instant loan.

Instant loans can be applied online from anywhere be it your home, office or while traveling back from work in a cab and stuck up in traffic snarls etc.

You simply need to visit the bank’s website, log in either through your Net banking facility or the bank’s mobile app, fill up the details in the online application form, attach self-attested soft copies of the necessary documents and finally submit your application.

You can finish off the process in a time as short as 10 minutes. Based on your eligibility and the applied loan amount, the bank will swiftly adjudicate the loan approval and facilitate the credit of the funds straight to your bank account.

Sometimes, pre-approved loans and instant or paperless loans can be confounded. There is a pragmatic distinction between the two. In case of pre-approved loans, banks, in advance, assess the customer’s eligibility and put an offer of the loan, which the customer at his sole discretion may or may not take up.

Or in other words, pre-approved instant loans work only for those individuals who carry an existing relationship with the bank either in the form of a savings account holder or a borrower. The bank, therefore, already has the requisite details of the customer’s salary and previous credit records—the key elements essential for offering the loan.

1. Indulge in mindful borrowing

Instant loans are anything but difficult to get. However, ensure that you don’t let the simplicity of acquiring them deceive you into imagining that they are easy-breezy money. Abstain from making recurrent borrowing a tendency to bail you out of every financial adversity. Resort to a more careful borrowing, only when you are left with no other reasonable option to make arrangements for the funds. Repeated application of instant loans will also impact the borrower’s credit score in an unfavorable manner.

2. Explore less expensive alternatives

As instant loans are simple to access and facilitate prompt disbursement, it can keep you from taking a gander at other loan choices. For instance, an education loan can be obtained at a much-reduced rate of interest. Nonetheless, individuals may prefer the faster disbursal angle and cede the cheaper interest rate, even at the cost of settling for an inflated loan fee.

3. Pay close attention to the terms and conditions

In addition to the interest cost, there are other costs that you need to bear. Some instant loans may charge a penalty amount for prepayment. If you prepay the loan you can save a sizeable interest cost. Interest rates of traditional personal loans are typically lesser than instant loans. Also enquire with clarity about the processing fee, late payment fee, and administrative cost structures. Banks normally charge up to 1-2% of the applied loan amount as the processing fee.

4. Keep a check on your declining borrowing limit

An instant loan, being an unsecured loan diminishes your borrowing ability till the time it is repaid. Assume you need to purchase a home on loan, yet since you have officially availed an instant loan and are remitting EMIs for it, the capacity of your repayment would consequently minimize to that level and you will most likely be unable to acquire more loans unless the ongoing instant loan is fully paid back.

5. Ensure personal information security

Apparently instant loans may look straightforward, however except if you accurately furnish all the necessary details, it may not happen instantly. Likewise, as these loans are kept running on technology, don’t brush off glitches at the time of application. Be aware that your digital footprint is imperative because some lenders even exhibit a propensity to rely on your social media conduct. Just in case you are comfortable to disclose your personal details to these apps and websites should you try availing these products.

6. Window-shop for better interest rates

Engage in some shopping around for better and flexible rates. Refrain from actually applying just for the purpose of checking the interest rate. This will lead to spontaneous and stiff inquiries about your CIBIL score which can negatively impact your credit rating. You can find out the prevailing interest rates by calling the customer care.

7. Ensure to service the EMIs regularly

Nobody knows about your loan repayment capacity better than you. Not in any case your bank does. Therefore, be honest and do a fair evaluation. On the off chance you believe that your EMI repayment ability is tenuous, do not go for the instant loan. Falling through your EMI servicing will cause penalties and likewise damage your credit score.