Fintech lenders have become the modern day alternative to traditional lending institutions like banks for individuals seeking access to personal loans. As a matter of fact, it is mostly because of Fintechs and P2P lenders that personal loans are now delivered much faster than they once used to be. Owing to this, personal loans offered by Fintechs are commonly referred to as instant loans.
Fintechs have taken a diversionary path from the usual traditional way of lending. Instant loan approvals and super-quick loan disbursals have led people to form untrue assumptions about loans from Fintechs. In this article we seek to bust the most popular myths surrounding instant loans from Fintechs. By busting these myths, we are certain to get more clarity on instant personal loans offered by Fintechs.
Instant Loans from Fintechs come with super-high interest rates
The first thing that people often conclude when the idea of applying for a loan from a Fintech or P2P lender pops up is the interest rate on the loan. A lot of people assume that the interest rate charged by Fintechs or P2P lenders is exorbitantly high. Well, speaking of it, it is definitely not. These lenders do not charge super-high rates of interest. The interest rate is comparatively high, but definitely not by much. More so, even if we are to compare two different interest rates on a particular amount and the difference between the rates is an index of 2-3%, it doesn’t amount to a hefty increase in the monthly repayment amount. So in that way, a miniscule increase in interest rates is not going to affect you massively.
Fintechs do not adopt risk-based pricing
Well, with the myth that Fintechs charge an exorbitant interest rate, there is also the myth that Fintech and P2P lenders do not adopt the risk-based pricing while determining interest rates on applications. As a matter of fact, they do! All lenders employ risk-based pricing models while determining interest rates. As such, even if private banks are known to offer the lowest rates of interest in the market, even if you approach a private bank to get the lowest rate, the final rate that you are offered will depend on your credit score and repayment history. The risk-based pricing model helps lenders to calculate the risk quotient associated with an applicant by estimating the probability that the applicant will default.
They do not offer instant approval
Fintech lenders use advanced algorithms to instantly determine whether an applicant can be eligible for a loan or not. The common myth is that instant approval isn’t a reality. But the fact of the matter is that it is! Once information on an applicant’s credit profile is obtained from the bureau, various parameters form the credit report are assessed, and instant approval is generated. Once that happens, the applicant is asked to submit his/her documents, and a customized loan offer is subsequently generated.
They take as much time as banks to disburse amounts
No! Not true. Private Banks usually take 7-8 business days to process and disburse loan applications whereas Fintechs take just 2 days. Sometimes in cases where an applicant has an excellent credit health, processing and disbursal happens on the same day.