Alternative lenders are on the way to become the chief loan providers to individuals often shunned by traditional banks, if they are not already. Today if someone wanting an emergency loan approaches a bank, there is about an 80 percent chance that they will be denied. Alternative lenders on the other hand have mastered the art of using technology to simplify the lending process and are therefore able to come to the rescue of such people.
It is difficult to believe that a decade back, people booked holidays via brick and mortar travel agencies. Six years ago, people shouted/hailed for taxis waving their hands. Today, Yatra, MakeMyTrip, Ola and Uber are household names. Previously, when a person is in need of some emergency cash, all they could hope to do was borrow from a relative/friend or approach a bank. In both the cases, the possibility of a NO was more. Today, there are alternative lenders accommodating most of those belonging to the ‘rejected’ category by banks.
Digital lending developed following inflation and subsequent tightening of lending criteria by the banks, especially when it came to unsecured loans, riding purely on credit history and credit worthiness. Alternative lenders thrive because they focus on using technology to streamline the process across all the bases mentioned below.
- Awesome User Experience:
We all know how difficult it is to get anything done at a bank. People actually feel the need to take leave from office, even. The application process and documentation could take days. But alternate lenders have kept the paperwork to the bare minimum and digitalized the whole process. So they can disburse the loans to the customers’ personal account in less than 24 hours. In cases where clients want to estimate all of their choices and compare rates in one place, they can now turn to websites like BankBazaar or deal4loans for an easy search.
- Underwriting Process:
Generally, underwriting by a bank entails assessing bank statements, IT returns, credit history, credit score, social score and income proofs. But for online lenders, it is not as complicated and hence they take less time. Of course, even banks are planning to get rid of this archaic procedure, if not already.
- Costs & Rates:
Of course, banks offer loans at lesser interest rates than alternative lenders. But it is not open to all. People working in Cat-B companies and below with less than 750 CIBIL are considered ‘risky’ by banks. The upside is you get the money quickly. When Fintech firms say emergency loans or instant loans, they mean it.
Just as technology has modernized the way we travel, ‘non-bank lending’ or ‘online lending’ will no longer be regarded as an ‘alternative’ option. They will just blend in. With more customers opting to rely on their smartphones and laptops rather than on brick-and-mortar branches, financial products and services had to upgrade. When traditional banks hesitated, Fintech startups cashed in on the opportunity. And look where they are today!