What are the points to look out for while applying for a digital loan?

 

Digital loans have become quite popular among people during this pandemic. These have a quicker loan underwriting and approval process when compared to regular loans given by banks and other lending institutions. Although the application process is simpler and the loan amount is released quickly after approval, there are some points to keep in mind while applying for a digital loan.

 

Check out these factors before you apply for a digital loan

●       A high credit score will be helpful: Although most digital lenders put focus on alternative data for ease in the loan underwriting, the high credit score of the loan applicant provides a lot of benefits during the loan disbursement process. A credit score allows the lending body to inspect the creditworthiness of an individual. A high credit score denotes that the borrower has a good financial record and presents less risk to the lender. Thus by having a high credit score, the loan applicant can enjoy benefits like availing of digital loans with slightly lower interest rates.

●       Check your affordability: One can easily get a digital loan quickly but this does not mean that one does not have to pay back the amount or the interest. A major mistake that some people do is not checking beforehand whether they can or cannot pay the equal monthly installment (EMI) of the digital loan. Thus before applying, you must check your affordability criteria. It depends upon the amount of money you have to pay for your debt payments from your monthly income. Check if you have enough money left after paying the EMIs otherwise you may have to default on them to manage your monthly expenses.

●       Get only the required amount: Since getting a digital loan has become easier, people sometimes take out loans that consist of a much larger amount than the needed money. They forget that while having additional money feels good, the lending institutions are also charging interest on that extra amount. Moreover, if you take out a large amount of money as a loan and choose a long tenure to repay it, you are paying back more interest to the lender. Thus use an EMI calculator to see the amount you have to pay each month for the digital loan. Apply for a digital loan of that much amount whose EMI you can easily payback and can complete the loan repayment as soon as possible.

●       Learn about the use of alternative data: Digital lenders and other financial institutions have started focusing on multiple data factors for the loan underwriting process. Apart from credit scores, the use of alternative data of the borrowers has also become more prominent. It includes payment history of bills, mobile recharges, online shopping data, etc. The lenders use this data to check the creditworthiness of the digital loan applicant.

 

These points show us how to get a suitable digital loan from online lending platforms. As the lender checks the credit risk of an individual, it is also the responsibility of the borrower to check the credibility of the lending platform before applying for a digital loan.