Fintech firms have revolutionised the borrowing process right from the application stage to the final disbursal of the amount. Not only they have nearly removed the clutter of paperwork required earlier but also eased many a process with borrowers just a click away from getting credit.
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That said, traditional banks continue to offer benefits that the fintech space is still trying to match. Given the space is not as regulated as the banks are, fintech firms can provide credit solutions in a very niche or limited way.
Given pros and cons exist on both sides, a lot of customers struggle to pick between the two when applying for loans. Experts agree there can't be a simplistic answer to it and it totally depends on the borrowers and the situational requirement for loans.
A borrower should basically factor in approval/disbursal time, interest rate, and repayment conditions, said Anshuman Narain, Vice President at CashBean
“A seasoned professional with a relationship with her or his bank can depend on that for not just benefits in interest on loans but also on associated products that the individual may avail from the traditional banking institution. On the other hand, if the borrower is someone with a low credit score or hasn't formally joined the financial ecosystem or is in urgent need of emergency funds then definitely fintech would ideally be the better option simply due to the low documentation requirements and a turnaround time (TAT) that can be as low as 20 minutes,” Narain told CNBC-TV18.com.
A clear advantage that fintechs have over banks is in relation to quick approval or rejection of loan applications. On the other hand, banks or other traditional lenders typically may take anywhere around 7 to 8 business days to decide and disburse on a personal loan.
Some fintech players provide approval within 5-10 minutes and the loan amount disbursal in a maximum of 72 hours, said Adhil Shetty, CEO at BankBazaar.com.
On the flipside of fintechs, Shetty said that the interest rates charged by them is usually higher or even "extortionist" compared to banks.
“In many cases, the interest rate can be extortionist. There are app-based lenders that charge a daily interest, and the annual percentage rate (APR) can be as much as 400 percent per year," BankBazaar.com's Shetty told CNBC-TV18.com.
It is always better if customers watch out for the red flags and opt for lenders associated with the Reserve Bank of India (RBI), Shetty added.
Furthermore, it is prudent to do a situational analysis of the loan that customers are borrowing to find the best source for funds.
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(Edited by : Ajay Vaishnav)
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