While it is easier for individuals with decent income proofs and established repayment track to get loans quickly, many people such as gig workers, part-time workers, freelancers or young students, who have never accessed any credit, have been struggling to get loans to meet even small funding requirements. However, technology has facilitated the borrowing options for these people. Many new-age lenders are coming up with innovative tools to provide lending to hitherto unattended segment of borrowers.
Credit to all
Whether you are a part-time worker without any income document, or a freelancer with irregular income pattern or a self-employed person with inconsistent income, you can still get a loan today. "The majority of our customers are new to credit and we have built our policies and products in a way that it enables smooth experience for these first-time credit users. The range of products that we offer to these new-age professionals is often not available in the market," says Rajan Bajaj, Founder & CEO, slice.
In some cases even without any income you can get small ticket personal loans."Any Indian college student over the age of 18 is eligible to borrow money instantly using the mPokket mobile app. It's a very simple process where the user needs to install the application from the Play Store and then do a phone number-based registration. Once he is registered, he/she needs to provide basic documents such as identity and address details. We validate the details entered and then they are ready to take the loan. Our primary target is college-going students," says Gaurav Jalan, Founder & CEO, mPokket.
Typically the amount needed by students is not bigger so the loan option also comes in small ticket size. "The average ticket size of borrowing on mPokket typically ranges from Rs 500-2000, but the limit could go up to Rs 20,000, depending on special scenarios and emergencies. However, we primarily cater to those who do not have huge monetary needs. This explains why the average ticket size on mPokket is relatively smaller than other players in the market. Borrowers get up to three months to repay their loans," adds Gaurav Jalan of mPokket.
Not necessarily a costly option
Revolving credit that is given by credit card providers is one of the costliest forms of credit as it allows you to postpone repayment by paying a high finance charge and a very small part of principal. You get EMI conversion option in your credit card to bring down the interest cost and repay the dues in instalments. Some of these features you can get from these new-age lenders as well. "We have no minimum due concept, unlike traditional credit card companies. Hence, if a customer is unable to pay the whole bill, he can convert them into monthly EMIs. Our EMIs tenures are up to 18 months," says Bajaj of slice.
For students the interest rate could be on the higher side in line with credit cards, which charge around 3.5 per cent per month on the outstanding amount. "Our interest rates are similar to those of credit cards. Further, given how our ticket-size is relatively small and is INR 500 for first-time borrowers, the interest is nominal as well, thus translating to lesser stress on these students during loan repayment," says Jalan of mPokket.
You get similar options
While the major hurdle in access to credit may have been addressed by these new-age lenders, it would not be a good option if it does not offer the same level of convenience and options, which traditional lenders offer. In this aspect, you can get almost similar facilities as formal credit cards offer. "The advantage that a slice user has, is that our card and No cost EMIs are absolutely free, there are no hidden costs or interest attached. Typically, if the customer pays the complete due the next month, there is no additional fee or interest charged. However, we charge interest on other products, which is in line with the market," says Bajaj of slice.
Many finance companies offer no cost EMI option to borrowers for purchasing merchandise. These options are primarily offered at point of sale of many shops. Now these options are also available to the people who are new to credit. "We also offer no-cost EMIs up to six months in partnership with major online marketplaces and offline stores. Here, no extra charge is incurred by our customers. For cash withdrawals, however, we will charge a processing fee in addition to interest. It starts from Rs 50 and can go up to a maximum of Rs 500," says Bajaj.
Digital credit assessment to assess risk profile
Unsecured lending, where lenders give loan to borrower without any security, has traditionally been one of the riskiest forms of lending. To assess the risk profile of the borrowers, these new-age lenders use various data related to the borrowers. "We assess customers on many cash flow-based and non-traditional data points like social network. The final model is a combination of statistical analysis and ML-based algorithm score built on these 1000s of parameters," says Bajaj.
These new-age lenders are also deploying new methods to increase their accuracy in predicting the future behaviour of the borrower. "We have a proprietary credit-scoring algorithm driven by Artificial Intelligence and Machine Learning, which leverages thousands of data points on the user to assess their creditworthiness. The data points come from a variety of sources throughout the process, which we harness to map consumer behavioural patterns," says Jalan of mPokket.
"For example, during the document-collection process for approval, we observe the way users interact with the platform-how much time they took to submit their documents, whether the submission was initiated by them or was the result of us prompting them, etc. Once we have made such observations and found out the patterns by deploying our algorithms, we are able to assess each applicant basis these more comprehensive parameters to identify and mitigate risks on each profile. In this manner, we are able to assess the profiles of new borrowers like college students or gig workers," he adds.
While your borrowing options are getting bigger, you should not drop your guard while taking credit. You should thoroughly check the terms and conditions, the cost and repayment schedule. It goes without saying that you should borrow within your means, which you can pay off as per the committed schedule. Any default can have serious implications on your future ability to access credit.
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