Loan from a digital lender: 10 points you need to keep in mind

Non-traditional institutions or online institutions differ from traditional lending avenues in terms of their examination process prior to approval, which is shorter and faster. They take into account lesser data to make their decision before giving out a loan.

Here are points you should keep in mind before taking a loan:

Keep certain key documents prepared for KYC

Although the non-traditional lender does not necessarily require copious amounts of documentation, fintech companies are definitely harnessing artificial intelligence, automation, and machine learning to simplify the KYC process. Besides accelerating the verification process, this is an added advantage for customers who prefer stay-at-home KYC.

Documents such as identification proofs, bank statements, addresses, photographs, and signature images are all verified by such alternate technology. Ensure that you keep all your documents in the form of PDF so that they can be easily uploaded in a hassle-free manner.

Apprise yourself of terms and conditions

After uploading documents and entering all the necessary details, the next step usually leads to attesting an e-signature. Before you attach your e-signature, make sure to go through the terms and conditions regarding your obligations and other charges and then only proceed with the ticking of “I agree” on each box. Adhering to this practice can help you avoid a number of prospective surprises and make you informed about what you are getting into.

Keep a good credit score

A credit score is a number that denotes a borrower’s creditworthiness. Therefore, it is advisable to keep a good credit which essentially ranges somewhere between 600-900. The benefits of having an ideal credit score would be a quicker approval of the loan and lower interest rates.

Get a good understanding of the jargons

Be aware of certain jargon before you proceed with taking a loan. You would not want to get into something that you do not understand, right? Get a crystal-clear comprehension of concepts such as foreclosure charges, loan cancellation charges, penalties for delayed payment, fees to be paid for bounced EMIs, sundry legal costs, etc.

Assess your financial situation 

Many people often commit the mistake of landing in the debt trap of taking a loan with lower interest rates and lesser maturity date. Engaging in such transactions might jeopardise your financial goals if you do not consider other concurrent aspects, such as stability of your job, probable expenditure in the near future, if you have a co-borrower, etc.

Choose the right product

Make a smart decision while choosing the kind of loan you would want to opt for. There are several types of loans available. Thus, to zero down the apt loan, you can create a checklist and assess certain aspects such as: if you want to opt for a long term or a short term loan, all the payment available options, the maturity date of the loan, the collateral required, etc.

Ensure an optimum amount

Do not burden yourself with an excess loan burden because it will hurt your pocket and disturb your budget at the end of the day. Moreover, failure in making a timely payment can also impact your credit score for a future loan application.

Provide correct details

Make sure that you do not provide any false information regarding your identity or income details. You would inevitably face the brunt of rejection if you provide any wrong information and effectively lose the chance of getting a loan.

Explore your eligibility

Numerous platforms on the internet can help you assess the maximum amount of loan that an individual can take depending on your income, credit score, EMI plans, etc. Fintech relies extensively on artificial data, tested algorithms, and automated processes and technology to cater to their customers and check the eligibility criteria. One key point is that if you opt for lower EMIs, you will have to prolong your monthly payments for a longer duration, thereby paying more. Therefore, availing a higher EMI plan for a shorter period is advisable.

Draw up a budget

To abstain from making unnecessary and frivolous expenditures, make a monthly budget of your wants and needs. Make sure that you prioritise your needs over your wants. If possible, cut down on your wants a little bit to keep your debt levels lower. This will help you repay loans faster.

(The writer is founder and CEO, PayMe India. Views expressed are personal)