How Digital Lending is Transforming the World of Loan Borrowers

by Carol Adams Financial Adviser

Digital technology is the ruler now, and it is ubiquitous in the presence and irreplaceable in importance. It is now in the lending world, making the lives of the borrowers easy through direct lending. Things are different for the lenders as well as the loan applicants now. The procedures, formalities, everything has changed for many good reasons and being a part of this modern world you should know about those reasons. We all have financial goals and needs for which we need loans now and then. It the platform of lending has changed with new technology, you should also be aware of the change, as it is required to add a new chapter of financial literacy.

DIGITAL LENDING IS PROGRESSIVE AS WELL AS INNOVATIVE. Nowadays, even messaging services like WhatsApp are looking forward to offering loans through the mobile payment feature.

Rapid lending decisions

With time, the lending industry understood the importance of the time of the borrowers. It sensed the restlessness of the borrowers; also, the world out there is moving fast. The traditional lenders, which used to be the only source of funding, interacted with the emergence of private lenders with faster procedures. Thanks to their advanced approach to digital lending.

· Nowadays, borrowers do not wait for hours and days for the approval decision. It comes in a few minutes for short-term loans and a few hours for long-term loans.

· The rapid decisions happen due to the facility of digital verification of the financial history of a loan applicant. It means saving time and effort.

· Online application processes have replaced the hefty documentation formalities, which again supports the concept and feature of the rapid lending decision.

A rational approach towards employment and credit score status

Digital lending works on practical logic and considers the present more significant than the past. It does not say ‘NO’ to people just because they have a poor credit history. In fact, this new age lending appreciates the present-time improvements. Similarly, jobless people too can apply for funds with some terms and conditions.

· If a person with a detailed payment record has improved in personal finances with a strong repaying capacity, the digital lenders can approve his loan.

· The same logic of repaying capacity is applicable in the case of jobless people. If through any sort of source, one can prove capacity to repay, he can apply for the loans for unemployed.

· The credit score is still important, but it does not affect the final decision if the poor score issues relate to the past. That is a very logical approach, unlike traditional lending practices.

· Digital lending is not irrational to overlook the financial weakness of the borrowers. If an applicant has consistent incidents of missed or delayed payments, the rejection can happen.

Cheaper borrowing due to more number of options

The online presence of loan options has drastically increased the number of private lenders in the market. It facilitates multiple choices for the borrowers to shop around and pick the loan deal that suits their budgetary and financial needs.

· Due to multiple options, the lenders try to provide better deals at lower rates, which is beneficial for the customers. However, with the sundry alternatives, they also need to keep working on the factor of repaying capacity.

· The borrowers can easily bargain on the total cost or the interest rates because they have more than a few choices. It was not the case in the previous days because of the fewer lenders. In fact, there were only traditional lenders.

· Due to competition, lending companies offer more flexibility through personalized pricing. This freedom was impossible even to enter the imagination zone of the fund seeker. Now they live in the customer is the king’ zone.

Consumer-oriented regulations

Now, the regulatory authorities sound more in favour of the borrowers. Of course, the rational lending rules are uncompromised no matter how desperate the need of the borrower. But at the same time, strict rules are there to protect the rights of the borrowers.

· The regulatory authorities are very serious about the rights of the borrowers. They tame the lenders that charge very high-interest rates without any logic. The exit of some of the established payday lenders in past years is a perfect example of this initiative by the authorities.

· The authorization rules have been redesigned to make the authentication process more rational. For every lending company, authorization is necessary. It filters the market and throws out the unnecessarily expensive finance companies.

· The wrong culture of an upfront fee and hidden charges has changed, and the lenders have the instructions to be more and more transparent in their policies. They cannot charge anything in the name of an upfront fee or additional fee in case an applicant has a poor credit score.

· We all saw the benefit of mortgage payment holidays in recent times due to the corona pandemic. Borrowers got relief from paying the installments when they were locked in the houses. Not even in the long-term loans but also for the short-term loan borrowers, the payment holiday feature worked really well.

Smart calculators make loan cost predictable

Gone are the days of intimidating loan deals and lending policies. Now, the fund seekers first calculate the total and monthly cost of a loan and then decide. Thanks to smart financial tools like loan calculators that give an insight into the obligatory responsibility on loan and its impact on personal finances.

· A loan calculator can tell how the varied interest rates will impact the monthly installments and the personal budget of a fund seeker.

· A calculator plays a very important role in the case of big loans such as mortgage/long-term business loans/car loans etc., which is helpful for fund seekers.

· The calculators are of varied types such as repayment calculators, prepayment calculators, interest-only loan calculators, etc. It solves multiple purposes.

· People make informed decisions now because they have a rational tool that helps them understand the statistics of the cost of a loan.

· It has become easy for borrowers to know the cost factor and take faster borrowing decisions instantly. Clarity gives them confidence and certainty.

All the above points explain how positively digital lending had changed the experience of loan borrowers. They have more control now over their borrowing decisions, and also, they are more confident. With the help of a strong capacity to pay installments, they can enjoy the freedom to borrow despite poor credit and even unemployment. Isn’t it great? Yes, it is, and we all have to see more and new chapters of progress in the field of digital lending.