Personal loans made easy via ATMs and apps: How it works

Not just big private banks, start-ups, too, are offering instant loans on app

It’s not just large private sector banks that are offering instant loans to their customers through ATMs or via online bank accounts. Financial technology start-ups are changing the way personal loans are disbursed to borrowers.

Recently, India’s largest private sector lender, ICICI Bank, started offering personal loans to its pre-selected salaried customers through its ATMs. Only those on the bank’s pre-approved customers’ list based on their credit score would get the option to avail the facility. HDFC Bank has been offering instant loan through net banking. But if you don’t have a credit history or a longstanding banking relationship, you can approach start-ups such as EarlySalary.com, LoanTap, and so on.

As these lenders target customers who don’t have any credit history, they use a variety of parameters to evaluate the customer’s profile. They access an applicant’s social media account and build a profile after getting information through the app such as friends’ list, location, etc. They also evaluate the spending habit after evaluating the customer’s bank account statement. 

EarlySalary.com offers short-term loans from a day to a month. Once a person takes 5 minutes to fill in the loan application on the company's app, the KYC, signing of documents and disbursement can be done within a few hours. From the next time onwards, the disbursement is instant. “Around 35 per cent borrowers are new to credit,” says Akshay Mehrotra, co-founder and chief executive officer (CEO), EarlySalary.com.

Illustration: Ajay Mohanty

LoanTap offers on-tap credit up to Rs 5 lakh for one day to five years. But their loan system works like a credit card. “You can repay a minimum amount and revolve the outstanding, paying interest on it,” says Satyam Kumar, CEO, LoanTap.

There are also intermediaries such as Qbera.com which has tied up with RBL Bank, and PaySense, that works with India Infoline Finance. These fintech start-ups underwrite the loans for partner lenders. In case of defaults, they also bear the risk. “Theoretically it’s possible for lenders to do the same kind of underwriting that we do but the reality is that they are not as agile. Their adoption of technology is slow. Also, operating costs for lenders are too high, especially for small-ticket loans,” says Aditya Kumar, founder and CEO, Qbera.com.

In case of Qbera and PaySense, too, the borrowers can be big bank customers or those without a credit history. “Once we establish a relationship with them with the first loan, subsequent loans are disbursed instantly,” says Sayali Karanjkar, co-founder and COO, PaySense.

As availing personal loans gets easier, financial planners say borrowers should not fall for this easy money trap. If there’s a default, the institutions will report it to credit bureaus, and there can be problems when the borrower wants to go for a housing loan.

While these facilities are convenient, borrowers should use them only in case of an emergency and not on their usual expenditure. “Most financial disasters happen due to an individual’s inability to control spending. It’s difficult not to get habituated to debt when once uses such a product,” says Malhar Majumder, certified financial planner.

If you have a salary account with a bank, do explore the option of overdraft (OD) facility on the salary that comes at 14-19 per cent interest rates. Once set up, you can take an OD for up to a year in case of emergencies.