Future of Lending – Paperless Loans

Digitalization is touching every nook and corner of our lives and loans are no exception. If you fear the hassle of a myriad of documents and legal jargon and innumerable trips to the bank just to avail a loan, fear no more, for paperless loans are now a reality.

Paperless loans have a long way to go and will evolve and scale up. But for now, not all loans are paperless, instant loans or instant personal loans are. Paperless loans are also called instant loans because they can be availed fast.

Why we need paperless loans:

While it is good to stay ahead of the situations and anticipate one’s financial needs and plan accordingly, emergencies like the below mentioned, give no heads up.

  1. Unexpected delays in income
  2. Household or vehicle repairs
  3. Medical emergencies
  4. Sudden loss of money or property

The traditional loan sanction is not feasible in such cases. Approaching money lenders in the informal market often means higher rates of interest and even unfair terms sometimes. The other option being depositing collateral like gold is demeaning and is looked down upon too.

Advantage of paperless loans:

While there is no exhaustive list of characteristics that paper loans are required to have(except for being paperless), the concept sets some definitive features because of the current market situations and its limitations. And that gives a certain edge to paperless loans over traditional loans

Online applications: This means that applying for a loan is just a finger touch away and an application process is open 24×7 rather than the timings of the institution involved. This enables people to apply during weekends and holidays when they are free instead of having to make time off work during the weekdays and during the working hours

Convenience: The convenience factor trumps all others when it comes to loans. While an online application is an undeniable advantage, the hassle of physically going to the lending institution is boon in its own right. By cutting the physical visits to the institution, the paperwork and waiting time removed from the equation, paperless loans seem more attractive to borrowers.

Better interest rates: Paperless loans are short-term and so even if the mentioned interest rates are higher than those of long-term loans, the compounding effect is not too prominent and so the interest is not too high.

Swift sanctions: Paperless loans are synonymous with instant because they can be availed fast. The online processing quickens the process as the required checks are online too by accessing the relevant databases to verify the background and the information provided by the borrower.

Lack of high processing fee: The process charges for paperless loans is lesser and negligible while those of traditional loans is around 2 to 5%. This is directly because of the lack of paperwork and written legal agreements involved in traditional loans. The processing is cheaper and requires lesser manpower for paperless loans.

Quick and complete disbursement: The loan amount is disbursed anywhere in between 2-3 hours to within 24 hours. The amount disbursed is higher too because the processing charges are lower for paperless loans.

Not based on credit score or history: While credit score may be a factor in deciding the interest rate of a certain individual, the sanction of the loan itself does not depend on the credit score and history. The current employment status and salary are the major factors as those effects the immediate repayment capacity.

Lack of collateral: Paperless loans can have their own ways of ensuring loan repayment, but it does not involve handing over of the physical asset itself like in case of gold loans or the documents stating one’s ownership.

Sources:

Nationalized banks, non-banking financial institutions, fintech companies are all providing paperless loans today. Peer to peer loans is also possible through some websites and apps. Startups are booming around this too.

Procedure:

With transactions being possible in seconds, the procedures involved with taking a traditional loan is what slows down the process. Paperless loans bypass that procedure and take a shortcut. That isn’t to say that there is no work involved though.

  1. Choosing the right platform depending on the requirements of the individual and comparing the available sources.
  2. Verifying identity, source of income and the income and proof of address.
  3. Scanning the necessary documentation and uploading them.
  4. Wait for approval and disbursement.

Current shortfalls:

While the paperless loans provide a lot of flexibility and convenience to the borrower, the system is flawed in its own ways too.

  1. While loan approval is almost certain, it comes with the clause that the documentation has to be right and meet the standards of the institution. No human interaction in the process means stricter standards and lesser leeway in case of issues, even if only minor ones.
  2. It can soon become a vicious cycle of borrowing to repay one instant loan by another because of the ease of access. Some institutions might take advantage of this by promoting more loans. The lack of regulation of instant loans can turn problematic in the future.

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