Here's all you need to know about sachet loans

“The loans process is quick and is becoming quicker as fintech comes into the picture with technology solutions that eliminate the endless documentation process. Sachet loans are offering a systematic approach to tackle the fund crunch,” Garg told CNBC-TV18.com.

Some fintech players provide approval within 5-10 minutes.

These pocket-size loans are offered as need-based and custom financial products such as buy now pay later (BNPL), peer-to-peer (P2P) lending and supply chain financing.

It can be availed by downloading a loan application online or on mobile phones, completing an easy application process online and providing minimal documentation for verification and approval, said Anil Pinapala, CEO and Founder of Vivifi India Finance, while talking to CNBC-TV18.com.

The new age fintech companies offer short-term credit against the borrowers’ salary account or monthly income to help them tide over immediate or unexpected cash requirements.

Sachet loans can be availed when in need of funds immediately for unforeseen expenses like medical emergencies, immediate payments, etc., Pinapala told CNBC-TV18.com.

“When you fall short of money in the middle of the month, small sachet loans can be availed to manage expenses until the next salary without reaching out to your family, friends, employer or unregistered lenders,” he said.

In other words, various unexpected expenditures can be incurred by individuals who may find it difficult within their financial limits to meet. Sachet loans come to the rescue for such unprecedented moments.

According to Pramod Kathuria, Founder and CEO of Easiloan, these products come without the burden of heavy EMIs, and even MSMEs can opt them to meet their short-term working capital needs.

The interest rates charged on sachet loans are usually higher or even "extortionist".

"Some app-based lenders charge daily interest, and the annual percentage rate (APR) can be as much as 400 percent per year," BankBazaar.com's Adhil Shetty told CNBC-TV18.com.

Additionally, there are many illegal loan apps available on smartphone app stores, and customers should be judicious while choosing one.

Recently, the Reserve Bank of India (RBI) also said that it would prepare a "whitelist" of instant finance apps that will be allowed to be hosted on online storefronts in a bid to put an end to the proliferation of illegal loan applications.

Moreover, Finance Minister Nirmala Sitharaman expressed concerns about the increasing instances of Illegal loan apps offering loans/micro credit — especially to vulnerable and low-income group people — at extortionate interest rates and processing/hidden charges, and predatory recovery practices involving blackmailing, criminal intimidation, etc.

It is always better to watch out for the red flags and opt for lenders associated with the RBI.

Furthermore, it is prudent to conduct a situational analysis of the loan that customers borrow to find the best source for funds.