Due to the economic decline and an atmosphere of financial uncertainty caused by the pandemic, the Indian government announced an additional three month extension for term loan moratorium, making the end date now the 31st of August, 2020. This provided relief to millions of Indian who were struggling with the pressure to repay their loans as their sources of income dried up during the pandemic. However, while these millions benefited from the loan moratorium policies that allowed them more time to pay off their loans, including personal loans, for those looking to borrow, this doesn’t come as the great news it did for those who have unpaid dues.
Due to the policy and increased time to pay loans, banks will now have to wait longer to recoup their money. Three months longer to be precise. As a result, while they won’t be asking for repayment anytime soon, they will be less willing and more skeptical about giving out personal loans, as they are still waiting on their loan repayments. Luckily for these aspiring borrowers however, technological advancements have seen a new introduction into the loan industry, a player that could potentially impact loan and personal loan borrowing, and restructure the industry for good : Digital payment solutions.
Digital lending, or digital loan solutions essentially refer to digitizing the entire borrowing process, with the included goals of reducing the paperwork required and overall time taken for competition of the entire procedure. There are a number of reasons as to why this new age of lending is seeing a rise, including no longer requiring physical visits to bank locations etc by customers, an act that is both dangerous and reckless during the pandemic, as well as amendments in policy that aid this uprise of the digital age.
One of the prime reasons that digital lending has been able to poke holes at or arguably shatter part of the borrowing - lending industry is a significant reduction in loan processing and accepting times due to the speed of the internet. As a result, individuals are able to take out loans, including personal loans almost instantaneously. Given this demand for instantaneous liquidity and the complex, time staking procedure of traditional borrowing methods have offered much needed innovations to the industry, catering more to the needs of the customer whilst increasing convenience. A big reason for this massive reduction in processing times in the availability of e-KYC options, which take a fraction of the time that physical verification would take. While these new policies and guidelines may appear to be lax in nature, complex mathematical models allow for credit risk to be calculated for each customer on a personal basis. It could even be argued that due to the more streamlined process of digital lending compared to the varying rates offered by banks that are extremely volatile, digital lending and borrowing solutions are more secure and uniform in their approach to lending.
Another reason as to why one should make use of digital lending is the ease of availing loans. More often than not, in lending interactions, it has traditionally been the lender that has had the upper hand, and the one that dictates the term. This is a controversial stance as the banks are providing these services not to peers, but paying customers. For instance, if an individual were to seek a personal loan, they would have to borrow a minimum of Rs. 1 Lakh, have a good credit score and be earning at least Rs. 30,000 per month.
Digital lending solutions however, are much more consumer centric. Contrary to this model, digital lending has capitalized on the customer base left untouched by traditional lending due the hesitation to give out small term personal loans. Traditional lending policies also cause a multitude of people to not qualify for a loan due to their credit score not maturing, or due to being too young. The consumer centric nature of digital lending has allowed it to tap into this untouched customer base and grow at a rapid pace.
Arguably the biggest benefit of digital lending solutions is the fact that there is no finite number of lending solutions. Currently , over one thousand FInancial Technology (fintech) firms have etched a nook for themselves in the market, creating a new avenue of digital lending options within an industry worth over 2.5 billion dollars. Each firm has their own cutting edge lending module. From Point of sales transactions based lending, Invoice discounting exchanges and Loan marketplaces to Capital models and peer to peer solutions, these firms provide customers with a plethora of borrowing options they would previously never have heard of or been eligible for before.
While the 6 month EMI loan moratorium hinders traditional borrowing options, digital lending options have taken to the task and filled the gap left in the market by the effects of the pandemic.
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