Some lenders offer quick approval and disbursal, some are cost-effective, some offer flexibility in repayment
Unexpected expenditures often come knocking on your door when you want them the least. The reasons could range from maintenance for your vehicle to your old washing machine that needs to be replaced. The plus point of such expenses cropping up during the festive season is that you can always get a good bargain online (or at the store nearby). The fact still remains that these are expenses nevertheless. And that too when your festive expenditure is already lined up, leaving no financial bandwidth.
At times like these, loans bring a sigh of relief. But with so many options available in the market, whom should you approach with your loan requirement- banks or digital lending platforms?
Today, Indian consumers are benefitting from a range of financial products and financial institutions (FI) such as banks, non-banking finance companies, online lending platforms, etc, available at their disposal. If you are planning to take a loan or feel like there's a possibility of availing the same in the near future, you must primarily understand that every lender has its own unique pros and cons. Some are quick in terms of loan approval and disbursal, some are cost-effective, some offer greater flexibility to their customers, while some offer innovative products that are more relevant for an applicant.
Balance EMI and tenure
First and foremost, thoroughly analyse your loan requirement. Doing so will give you greater clarity going forward.
Take everything into account, from your current capital in hand and fixed monthly expenditures (such as electricity bills, rent payments, grocery expenses, etc) to any maturing investment or upcoming liabilities. For instance, taking a relatively smaller loan when you are also expecting a big-ticket expenditure soon (say tax-saving investment or the purchase of a new vehicle) would not be an ideal approach. It will be more favorable to go with a higher loan amount to meet all of your expenses.
Similarly, a shorter loan tenure will result in less applicable interest, however, it will also increase your Equated Monthly Installment (EMI) amount. On the other hand, while a longer tenure will ease your monthly finances, it is also going to attract more interest in the long haul.
Look for loans with flexible terms
Check which type of loan fits in the best as per your financial requirement. Today, some online platforms and banks have personalised loans that help meet needs as diverse as a wedding, traveling, and so on. Such loans give offer flexibility and a customised loan plan. Pre-payments are a desired feature to have in a loan since they directly decrease the outstanding principal amount and, hence, also reduce the applicable interest on this decreased outstanding principal for the remaining tenure. Also, while choosing between banks and digital lending platforms, make sure that you thoroughly analyse loan conditions and the net applicable interest rate. Do not fall prey to marketing jargon used by industry players.
Urgency of loan
Another important factor is the urgency with which a loan is required. Loans around festivals are characteristically time-based. They need quick disbursals. A bank can take anywhere around a week to a month in loan processing. This is true for even those banks where your salary account is maintained. Digital lending platforms, on the other hand, leverage a range of cutting-edge technologies beginning from loan origination to its final disbursal and thereby, sum up the entire process in a matter of days.
WEIGHING OPTIONS
- Some lenders offer quick approval and disbursal, some are cost-effective, some offer flexibility in repayment
- Personalised loans help meet needs as diverse as a wedding
The writer is head of risk & analytics, InCred
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