Bank or fintech app? Learn the key differences in personal loans

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Fintech apps have disrupted the market for consumer loans by offering more lending and convenience. With ease of benefits such as digital verification, fewer documents required, and quick approval procedures, fintech apps cater to young borrowers and those that banks are not comfortable lending to. Some apps use alternative data such as payment habits or transactional behaviour to assess the borrower’s creditworthiness. The speed and ease, however, often mean higher interest rates and varied customer protection regulations compared to banks.

Flexibility of repayment and interest rates

Banks would normally provide personal loans at better interest rates if the borrower’s financial record is stable and they enjoy a good credit track. The repayment tenure may be one to five years with disciplined EMI plans. Fintech apps, on the other hand, may charge a slightly higher rate of interest to offset the risk but provide flexible repayment options with shorter tenures and flexible EMI options. This ease can be an attractive option for first-time borrowers who are only looking for a small loan amount.

Documentation and eligibility requirements

When borrowing from banks, one is required to have documentation of their income, employment record, credit reports, and collateral for higher amounts at times. The requirements to qualify are stringent, thus lower accessibility for those with low credit scores. Fintech apps, meanwhile, mitigate this by relying primarily on e-KYC and other models of scoring, which allow individuals to borrow in the short term. The ease of getting approved, however, subjects the borrower to over-borrowing.

Customer experience and borrower experience

Banks prefer to provide extensive customer service in the guise of physical branches, call centres, and websites. The system offers borrowers recourse in case of a dispute, though the service can come across as bureaucratic and sluggish. Fintech apps, meanwhile, prioritize seamless app-based interfaces and chat support that is faster but perhaps less responsible. Borrowers have to weigh surety of established procedures against the ease of digital-first platforms when making a choice.

Which one should you opt for?

Your financial profile and needs decide between a fintech app or a bank. If you have a decent credit score, steady income, and want low interest rates along with higher security, a bank loan suits you best. If speed, simplicity, and flexible small-ticket loans are the priority, fintech apps will prove to be more effective. Borrowers need to compare both the alternatives carefully before going ahead with the plan that affordability and repayment culture continue to remain at the core of the process.

FAQs

1. Are fintech app loans safer than bank loans?

Yes, RBI-approved most fintech apps are safe, but they may not have the same level of protection and dispute resolution as banks. Borrow money only from RBI-approved apps to avoid fraud or unauthorized charges.

2. Are interest rates charged by fintech apps higher than those charged by banks?

Fintech apps tend to be charged at higher interest rates as they lend against riskier borrowers and approve very quickly. Banks will offer you better rates if you have a good credit record and stable income, though not so quickly.

3. Is it possible to raise my credit score by borrowing a personal loan from a fintech app?

Yes, timely repayment of loans via fintech apps can enhance your credit score, as long as the lender is reporting your payment history to the credit bureaus. Always check whether your selected fintech app is connected to formal credit reporting systems.