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Friday, April 14, 2017

Small and short term loans are new flavors of the season

High time we change our view about loans and make most of it!

Loans and debts are usually not the favourite words of Indians! It generally reminds of all negative emotions! But no more, if you are a good money manager, it helps you live a better life. It is no more just about emergency, loan has become a convenience tool too. The misselling and misusing credit card has left Indians with a bad taste for debt. Let us see how the short, quick and small loans are actually much more than just convinience. Prudence in repayment approach is a must.

There are series of offerings by non-banking loan providers and innovative concepts launched in last couple of years by Start-ups to attract Indian investors and borrowers, gradually making an entry. The target audience is specially the young 20 something's and early 30 population who are comfortable with their financial positions.

The #peer2peer lending companies like i2i funding, lendbox are few names which is a new concept of getting landed and borrower at the same platform The loan amount, payment terms are flexible.

The NBFCs are joining hands with apps to provide #short-term-loans of up to 1 lakh rupee for a period of 3 months, 6 months and 9 months. PAYSENSE is one such app. The interest is 1-2% per month.

What is #short-term-loan?
it is nothing but unsecured personal loan taken for a short period. Generally a short term indicates time period less than a year. Few companies offer repayment period of 3-6-9 months.

What is a #small-loan?
small loan in individual context is Rs. 1

When do you use it?

As the name goes, you should take this loan only when you are sure of repaying it comfortably within the stipulated time limit without any struggle. It's best for unplanned small expenses, which you are sure of repaying in splits within the boundary of salary in few months. It could be for a small vacations, medical expenses, buying a gadget without breaking your bank FDs or Mutual Fund savings. 

How is it beneficial?

It has some interesting benefits - 
1. It can help you build your credit history, which will help you for future big ticket purchases like home loan, personal loans etc.
2. On timely repayment, it helps you get a better CIBIL score which may be useful for negotiating interest rate for big loans
3. It helps you get a better understanding of documentation for loans, which will help in future
4. It helps you avoiding untimely withdrawal of your long term planned investments and plan repayment within your few instalments from your salary
5. Makes you financially more aware and responsible
6. It can help you bridge the liquidity gap, when you are sure of getting the sum in short period like salary or maturity of FD within a short period of time.

Word of caution
1. Loan amount shouldn't be more than your 2 months salary
2. You should be well prepared and calculated about your repayment ability and sources of funds
3. The interest rate in these products are higher than bank loans, so choosing minimum amount with shorter tenure is advisable.
4.On non-repayment, the penalties may ruin your pocket as well as credit history.
5. Check with the borrower thoroughly on the term and conditions, required documentation, actions in non-timely repayment and interest rates
6. The interest are higher than Banks. So checking the exact interest viz a viz banks and NBFC would be prudent. 

It's a convinience product and should be used with a proper repayment plan. It will be unwise take a hasty call taking such loans on emergency without understanding the implication

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