- As the disbursal channels have got hit badly owing to the lockdown, is it the time banks start introducing contactless personal loans?
- If they do, how will these loans work out and benefit borrowers? This post will tell you all
The ongoing lockdown due to the COVID-19 pandemic has made it impossible for lender executives to meet the customers physically, which is essential as part of the KYC process for various loans such as personal loans. The result is that many are not able to get a loan to meet their needs. Disbursals are happening but not without stringent terms and conditions. Most banks are not allowing personal loans to individuals who don’t have savings or salary accounts with them.
The poor loan disbursal rate is a problem not just for individuals but even for lenders whose credit growth is likely to slip further if the lockdown continues for long. Yes, the credit growth has reduced to 6.1% in FY 2019-20, falling from 13.30% in FY 2018-19, according to the data released by the Reserve Bank of India (RBI) on April 1, 2020. If you see the extent of the fall, it has been more than 50%. The slowdown in the economy has contributed to such a steep fall. Amidst the fall, it was a personal loan that held the fort. But with COVID-19 taking precedence, many banks have refrained from disbursing personal loans, thereby creating possibilities of further dip in the overall credit growth.
To ensure both lenders and borrowers meet their respective needs, the clamour for contactless personal loans is getting louder by the day. But how will it work and benefit you as a borrower? This is what the post is all about, so keep reading.
Likely Modus Operandi of Contactless Personal Loans
These loans, as the name suggests, require no human intervention. The process will be all-digital, thus ensuring quick disbursal. It will most likely pan out the following way.
- You need to visit the website of lenders offering personal loans
- From there, you need to go to the page of Contactless Personal Loans
- You will need to mention your personal details such as your name, date of birth, etc
- The lender will also ask for professional details such as your income, for how many years you have been working in the current organization, overall work experience, etc
- You will need to upload all your documents online, means those will be scanned ones
- If the details are found to be genuine and you meet the eligibility criteria, you will get an in-principle approval
What is in-Principle Approval?
It’s a sort of approval that you get based on your income, job stability and residence stability that the lender will get to know from your scanned documents. Based on what your income is and the kind of repayment potential you have, the lender will decide on the loan eligibility. If your income and repayment potential are sufficient to pay the EMI for the loan amount you want to have, the lender will give in-principle approval to the said quantum.
Now Comes the Critical Part i.e. Credit Enquiry
As we know the final approval and the subsequent disbursal is dependent on one thing that i.e. the credit score that you may have. Personal loans are usually approved for individuals with a credit score of 700-750 and above. So that rule will apply here too. Besides, the lender will do a deep study of your repayment history like it was doing for applicants before the lockdown. Ensure you don’t have any spot of default on the past or ongoing loans. Because the credit score may show on the higher side if you have started paying your dues on time following a spell of late payments. This might put lenders in a tizzy and they could either disapprove or delay the approval. They could even ask for a collateral, meaning it will not be a personal loan. Rather it will be a secured loan that is granted against fixed deposit, mutual funds, life insurance policy or even postal deposits.
So, Where Should You Look for Contactless Personal Loans?
Objects change over time, but not the principles. So choosing a contactless personal loan will still require you to follow the basics, which is to compare the interest rates, the maximum loan available, terms & conditions, etc. Weighing lenders on all these and finding out the best from the list should be your mantra for a hassle-free loan journey.
Benefits of Contactless Personal Loans at a Glance
These loans will ensure the following
- Time efficiency because of a fully digitized loan application process
- Quick approval & disbursal
- The application can be made from anywhere at anytime
Will the RBI Nudge Banks to Launch Contactless Personal Loans?
Above you got a brief of how the credit growth has slipped to single-digit in the FY 2019-20. And the situation may get worse as we move along unless stuff like contactless personal loans are implemented. It will prop up the credit growth of banks at a faster pace. If we talk about personal loans, they get disbursed faster than other loans because of fewer formalities. And with the human intervention going out with a contactless personal loan, the disbursal rate will move up and so will the credit growth of banks.
The banking industry in India contributes roughly around 7%-8% to the country’s Gross Domestic Product (GDP). Plus, India is home to numerous startups and many entrepreneurs go for personal loans instead of business loans. The prime reason is that they get a personal loan without having to submit any collateral. Whereas, only a few lenders disburse business loans without any collateral. When businesses get the right dose of credit at minimum formalities, they grow fast, get the room to employ more people and eventually add to the country’s GDP.
Given the benefits a higher credit growth of banks has on the economy, the RBI could ask banks to launch contactless personal loans.