A digital loan is a type of loan offered by financial institutions, including banks, non-banking financial companies (NBFCs), and digital-only lenders (fintech companies) through a digital platform, which could be a website or mobile app (application).
The entire process related to loan application, approval, disbursement, and repayment process is undertaken online. In case the digital lender is not a bank or NBFC, it should be in collaboration with one of the financial entities.
For the past decade or so, banks have been extending digital loans. However, it is only recently that digital loans have gained popularity. In this regard, conventional banks, too, have begun disbursing digital loans to address the growing demand in the market.
After the borrower has submitted their personal details along with relevant documents, the loan application is likely to be processed and approved within a span of a few hours to a couple of days. Once the approval process is initiated, the loan amount is transferred into a borrower’s bank account directly.
One of the core advantages of digital loans allows the lending entity to use real-time data to quickly and efficiently underwrite loans.
Through analysing digital payment data, such entities can extend credit-based payment products such as Buy Now Pay Later (BNPL) or equated monthly installments (EMI) products.
This way, by using a customer’s financial and transactional data to underwrite loans on an application programming interface (API)-driven approach, an entity can considerably cut the time required to obtain a loan.
However, before going in for a digital loan option, an individual must remain well aware of all the loan terms; this includes the interest rates, costs, period for repayment, and any other conditions.
Besides, comparing lenders can aid in zeroing in on the loans with the best terms and rates for addressing financial needs. It helps to go in for lenders having a proven track record and reputation.
Also, one will share many personal details before procuring a digital loan. Therefore, it remains crucial to ensure that the lender has effective security measures well in place when it comes to data protection and security.
Finally, applying for any form of loan will directly impact the credit report. In the case of a digital loan, too, a credit check will be undertaken, and this could have an influence on the credit score. An individual should consider all these factors and apply for a digital loan after due diligence.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.