If you are an urban, tech-savvy person, chances are good that you have come across many loan options – Banks, Non-Banking Finance Companies, NBFCs (e.g Bajaj Finance) or Fintech Startups (e.g. Credy). While each of them has a unique place in the financial ecosystem, it can be hard to determine which option to go for when you have a need for money. In this article, we will explain to you the main differences between these finance options and how to choose one that fits your requirements.
Let’s start with a brief overview of the options available:
Now that you know what these companies essentially are, here is a comparison of their major features.
|Feature||Banks||Large NBFCs||Fintech Startups|
|Time to Get Money||Typically 5-7 days||Typically 4-6 days||Typically 1-3 days|
|Reliability of Customer Service||Low||Medium||High|
|Flexibility in Rules||Low||Low||Medium|
|Process Step||Banks||NBFCs||Fintech Startups|
|Document verification||Generally manual||Generally manual||Generally automated|
|Agreement signing||Generally manual||Generally manual||Generally automated|
|KYC||Generally based on self attestation, signing of photo copies||Generally based on self attestation, signing of photo copies or eKYC for digitally advanced NBFCs||Typically eKYC or scan image upload based|
|Other paperwork (e.g. cheques)||Generally high||Generally high||Generally low|
So How Do I Choose?
If your requirement is of say Rs 30,000 for 3 months, the total interest cost would be as follows:
|Loan Provider||Total Interest (Rs)|
The hyperlinks take you to details of the loan terms – EMI, interest, principal etc.
As you can see, the difference in total interest between Banks and Fintech Startups would come to around Rs 500. If your requirement is urgent, this difference is something you may be willing to pay for speedy service.
Recommendation: If you want a fast personal loan for less than Rs 2 Lakh, it is better to go for Fintech Startups than Banks or Large NBFCs.
Recommendation: If the amount you require is more than Rs 2 Lakh, you can consider Banks or Large NBFCs.
Another factor to consider is your profile.
Recommendation: If you have any delays in past loans or credit cards, it is better to go for Fintech Startups than Banks or Large NBFCs since Fintech Startups are willing to more comprehensively look at your profile than just your credit score. Other lenders may waste your time in reviewing your application and then tell you it is rejected because of previous delays which may be more than 5 years old. As a healthy financial practice, you can generate your free CIBIL report here and your free Experian report here.
Recommendation: If you work in a startup / small company or have changed jobs or moved cities recently, banks or Large NBFCs may decline your loan application. For such a profile it is better to apply to Fintech Startups.
Recommendation: If you want a fast personal loan, the obvious choice is Fintech Startups.
NBFCs specialize in specific products – like Bajaj Finance for consumer durables or Muthoot Finance for gold financing.
Recommendation: If your requirement is for a specialized asset, you can go for the relevant NBFC.
To summarize, consider the loan amount, your profile, urgency and usage of your loan to determine the right loan option for you.
Personal loans are a quick way to get money for a short-duration financial need. You can use it for refinancing a large credit card bill, paying for a medical emergency or to pay for lumpy expenses like children’s school fees. While personal loans provide a convenient way to convert large expenses into easy EMIs, there are some important things to keep in mind.
Based on our experience of servicing and interacting with thousands of customers applying for personal loans at Credy, we have compiled these 6 practical tips to keep in mind when taking personal loans. It will help you save money, improve your credit score and satisfy your financial requirement without causing stress.
Personal loans are easy to manage when there is a specific expense that the money is used for. The expense can be for various needs – consolidating different loans & credit card dues, family occasions, medical emergency, lifestyle expenses like travel and so on.
Having a specific expense in mind has the following benefits:
Customers who do not have a specific need in mind when taking a personal loan eventually end up
There are many loan options – banks, NBFCs, online lenders, informal money lenders and so on. Not all are same, and not all would offer what your unique circumstances require. Identify your priorities – is it getting the money quickly? Is it having flexibility in loan terms and repayment options? Or is it saving interest cost? Here are some useful guidelines:
Based on your needs, you may prefer a lender who is fast and gives good service than a slower option with long opaque processes.
Customer support: But sir, why do you want just Rs 50,000? Your loan is approved for Rs 2,00,000
Me: Umm.. because I have to pay interest?
This actually happened when I got a call from a loan company after I checked out their website. Loan companies will always want to give you a loan higher than your need. For them its simple economics – their processing costs are almost the same whether the loan is Rs 50,000 or Rs 2,00,000. So why not give the customer higher amount and earn more?
As a customer, you have to make sure you borrow only the shortfall you have. Only the amount that you are lacking. This requires discipline, just as most financial best practices do.
Another way a lot of our applicants end up overborrowing is trying to pay off one loan with the other. DON’T do that. You will end up churning loans and enter a debt trap. Borrow what you need. Anything more is giving your hard-earned money for free to lenders. At Credy, when we reject such applications, we advise customers to avoid getting into a debt trap.
Loan terms are not always very clearly communicated by the lender. You should ask for a one-pager of loan terms that covers things like
You should calculate the amount of total late fees that you will have to pay if you are 1 month late. Make sure late fees and lender’s terms are reasonable and not like that of a “loan shark”.
A lender has access to a lot of your sensitive data. Make sure to ask them why they require that data and how securely is it stored. Here are some guidelines
This sounds obvious but sometimes is hard to implement. If you are facing financial troubles and don’t have the money to pay the personal loan EMI, you can do two things
Be careful to ensure you make repayments to the right party. Be extra careful when making cash payments. We had a customer who was paying his EMIs regularly in cash to a bank agent. Later he found out that the agent was not depositing the cash on time and using it for his own expenses! The customer’s credit history got permanently damaged because of that.
Make sure of the following when paying by cash:
Take care of above to a get a good deal on your personal loan without affecting your long-term creditworthiness.
Let us know in comments if these tips were helpful!
Credy is a Bangalore based online platform that provides fast online loans for multiple requirements like credit card refinancing, education expenses, medical emergencies etc. We aim to be a trusted and responsible lender, and believe that educating the customers about best practices is important.
Here are a few things which positively affect your credit score
Here are a few things which negatively affect your credit score
Always ensure you have good credit health. You never know when you will need to borrow money, for emergency or otherwise!
What is a credit score?
A credit score is a number assigned to you based on a study of your credit history which includes your loan history and their payment patterns, credit card usage and payment history, bank accounts held and closed, credit inquiries made by you etc.
Where can I get my credit score in India?
The Reserve Bank of India has licensed 4 credit bureaus to give out credit scores in India. They are Experian, Equifax, Highmark and the most popular and oldest one CIBIL. You can apply for a CIBIL score here.
What is a good credit score in India?
The most popular credit score in India is from CIBIL. It ranges between 300 to 900, with 900 being the best score. The meter below shows you approximately how many percent of total loan applications end up getting approved for different CIBIL scores. 79% of loans approved have a CIBIL score of more than 750.
CIBIL score range
0 or -1: If you have no credit history created via a credit card or loans, your score will be 0. You should take one so that you can build a credit history over time.
350 – 550: This is a bad score. You will be in this range if you have regularly defaulted on payments and your chances of getting new credit is very low.
550 – 650: If you are fairly regular with your payments, this is where your score would lie. Financial institutions would consider trusting you with new loans and cards.
650 – 750: You are in a safe zone. You will get a loan with a good chance and if you stick to your current payment habits, you could reach the best CIBIL scores.
750 – 900: This is the best range to be in. You are particular about your payments are have a really good payment history. Banks will offer you credit products with attractive interest rates.
Why is having a good credit score important?