Adhil Shetty
The financial world is changing. Bank processes are now faster and paperless. Remember those days when people used to stand in long queues just to deposit or withdraw money? And if they wanted even a small loan, there was no saying how long it could take. Then came the ATMs and online banking, and much has changed since then. Now, you can get a loan quickly – pre-approved, paperless, and instantly.
Instant loans are so popular now that many loan seekers prefer them over traditional personal loans. Undoubtedly, instant loans aim to decrease the borrower's hardship, and to save time for both lender and borrower. Convenient as an instant loan may be, you should be aware of what you're signing up for. Here are some thoughts to consider before taking an instant loan.
How you can get instant loan
An instant loan can now be applied for sitting at home, office or from anywhere else connected to the internet. You just need to open the bank's website, open the online application form, fill the details, attach the soft copies of the requisite documents and submit the application. The bank will quickly decide the loan approval as per the amount applied for, your eligibility, and credit the funds directly to your bank account.
You may confuse a pre-approved loan with an instant or paperless loan. There is practical difference between both. In pre-approved loans, banks check the eligibility of the customers beforehand and make an offer to the customer who may or may not apply for it. In an instant loan, the borrower can at any time apply for a loan based on their requirement and the lender immediately checks the financial credentials and eligibility of the applicant and thereafter approves or rejects the application. Instant loans are useful for people in financial crisis, but at the same time you must assess the costs of borrowing.
Borrow with care
Instant loans are easy to get. But don't let the ease of borrowing fool you into thinking that this is easy money. Frequent borrowing shouldn't become a habit to get you out of every financial crisis. Borrowing should be used carefully and only when there is no other, cheaper choice available to arrange the funds. Applying for instant loans repeatedly will also negatively impact the credit score of the borrower.
Look for cheaper options
Easier access and immediate disbursement of an instant loan can prevent you from looking at other loan options. For example, you can get an education loan at a very low interest rate. However, people may forgo the cheaper rate for quicker disbursal even if they end up paying a higher interest rate. Always look at multiple options, and take the loan which is the cheapest and most convenient to repay.
Terms and conditions could be stricter
You may need to pay a penalty for prepayment on your loan amount. The interest rates on instant loans are normally higher than a typical personal loan. The processing fees also need to be taken into account.
Your borrowing capacity may fall
An instant loan is an unsecured loan and it reduces your loan borrowing capacity till it is paid back. Suppose you want to buy a home on loan, but since you have already taken instant loan and are paying EMIs for it, your repayment capacity would reduce to that extent and you may not be able to get a bigger loan till the existing instant loan it cleared.
For example, if you can pay EMIs of up to Rs 50,000 per month, and are already paying an EMI of Rs 20,000 for an instant. Therefore, your repayment capacity for a fresh loan will come down to around Rs 30,000 per month till the instant loan is repaid.
Borrowers should be aware of the repayment cost and charges in taking an instant loan, and should only borrow within their means. Once taken, this loan should be handled with care and repaid as soon as possible.
The writer is CEO, BankBazaar.com
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