Glittering online loan offers

It’s imperative for borrowers to ensure that they are seeking an online loan facility from the Reserve Bank of India (RBI) – registered entity
"In other words, the online loan facility driven by state-of-the-art technology is emerging as the most popular means of obtaining loans in real-time without getting entangled into hassles."
"In other words, the online loan facility driven by state-of-the-art technology is emerging as the most popular means of obtaining loans in real-time without getting entangled into hassles."Pxhere [Creative Commons]

Gone are the days when obtaining a bank loan was an uphill task as borrowers were subjected to tedious process. This offline loan process is usually loaded with a host of formalities which the borrowers are required to comply with to get a loan sanction and disbursement. Today, the scenario stands changed.

Thanks to the advanced technology which has made it possible for consumers to access funds, be it for personal consumption or for the purchase of consumer durable products, just at the click of a button. It’s the fintech (financial technology) which has helped to improve and automate traditional forms of finance for businesses and consumers alike.

In other words, the online loan facility driven by state-of-the-art technology is emerging as the most popular means of obtaining loans in real-time without getting entangled into hassles.

This facility offers an ideal solution to meet financial needs, especially in emergency situations. For instance, you might need a refrigerator, washing machine or any other consumer durable item, you have an option to take the route of an online loan facility offered by various loan service providers to purchase such products.

The technology has made it possible to obtain such online loans effortlessly and in a speedy way. Today, it’s not a new thing to get an instant message or email from fintech companies offering you instant loan facility for any need through online mode.

Onus is on you to speed up the process as you have to share a few personal details such as Aadhaar No, PAN card details, bank account number etc. However, it’s imperative for the borrowers to ensure that they are seeking an online loan facility from the Reserve Bank of India (RBI) – registered entity. Otherwise. there is a possibility of encountering multiple risks which can harm the borrowers in multiple ways.

What exactly is the process of online loans?

In simpler terms it is digital lending where a borrower is not required to physically visit a bank or any loan service provider for obtaining the loan. Even as the online loan facility has been existing ever since the advent of the Internet, it was during the Covid-19 pandemic that obtaining loans in online mode gained traction.

Today, people prefer to apply for instant loans, personal loans and even gold loans online, from the comfort of their home. Be it individuals seeking instant loans to meet sudden medical expenses or SMEs seeking small loans online to restart their business, digital lending and online loan application is ruling the list of Fintech trends since 2020.

Remarkably, the entire process in online loan facility right from applying for the loan to paying the installments and the loan closure is done online. Lower interest rates and minimal documentation requirements are attractive features of the facility. Above all the loan is mostly approved and disbursed within half an hour.

What is the responsibility of the borrower while applying for the online loan facility?

First and foremost thing is to assess your needs – whether you need a loan or not. Once you evaluate your needs and decide to take a loan, you should do basic research about the online loan service providers. It’s important to check the credibility of the loan provider and you have to ensure that it is regulated by the Reserve Bank of India rules.

Don’t forget to compare offers from different companies in terms of rate of interest, repayment schedule, loan amount etc. Once you decide to approach the loan service provider for the facility, visit their website and fill in personal details and other information needed regarding your loan requirements. Under KYC guidelines, you have to upload your Aadhaar, PAN card, income proof and other documents depending on the type of loan.

The company will evaluate your creditworthiness, repayment capability and identity verification based on the documents uploaded by you. Once the loan is approved, the amount will be directly credited to your bank account instantly.

You will get full details of your loan sanction on your registered mobile number and the email. If you find any discrepancy, immediately take up the matter with the loan provider. In nutshell, borrowers using online loan facilities need to adopt prudent behavior when initiating any financial transactions or engagements with the entity over varied digital financial platforms.

What are the precautions to be taken by the borrower while going for an online loan facility?

Even as online lending is gaining popularity for being hassle-free, the unsecured digital environment has exposed the digital borrowers to multiple risks. During the past two years, we have observed a steep rise in digital frauds where gullible people have been robbed of their hard earned money. So, it’s very important for the borrowers to understand the risks associated with such digital loan applications.

There is a breed of unscrupulous online loan providers who charge excessive processing fees, do not reveal terms and conditions, and follow aggressive collection practices. You need to be cautious about such fintech companies. Be away from them.

There is a risk of identity theft. Fraudsters present themselves as representatives of a reputed fintech company and lure the borrowers to apply for loans through them for better rates, or discount on loan repayments. This way they steal the identity and misuse it for financial gains.

Precisely, the basic mantra is to know your lender well and go with an RBI-registered fintech. Besides, do not click on unsolicited links in mails or messages and stay away from pushy digital lenders with quick loan offers.

Last but not the least. Check whether the entity providing the online facility has a grievance redressal mechanism in place. Find out if the lender has shared the contact details of its grievance Redressal staff.

What are the RBI guidelines for online loan providers?

The guidelines issued by the RBI in August 2022 have come into effect on December 1, 2022. The guidelines protect customers from exorbitant interest rates charged by digital lenders and prevent unethical loan recovery practices.

It also specified the regulatory, data and technology requirements of digital lenders and registered entities (REs) and no pass-through/pool account of the Lending Service Providers (LSPs). These REs constitute commercial banks, primary (urban) co-operative banks, state co-operative banks, district central co-operative banks, NBFCs and housing finance companies. 

According to these lending guidelines, the loan disbursal and repayment process would take place between the bank accounts of the loan borrowers and Registered Entities only. That is, third-party accounts would not be used for loan disbursement and repayment activities.

RBI has also asked lenders to discontinue auto-increasing borrowers’ credit limits without their consent and put in place adequate loan recovery systems and processes. 

Precisely, the RBI through its guidelines has emphasized on the need for digital lenders to ensure full transparency while offering products through digital platforms. Banks and non-banking finance companies (NBFCs) would be responsible for all regulatory compliances (including those related to customer protection and product transparency), irrespective of the involvement of third parties in the credit facilitation process.

Disclaimer: The views and opinions expressed in this article are the personal opinions of the author.

The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.

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