Should you use instant personal loan apps? Benefits, risks, and alternatives explained | Mint

Finance has changed with the introduction of fast personal loan applications in India. These online lenders are an attractive option for emergency cash, as they offer quick approvals and minimal documentation. They have pros and cons too, like all financing solutions. This in-depth information will guide you towards making a well-informed decision.

Benefits of taking out a personal loan for instant loan apps

1. Fast disbursal: The most notable perk of instant lending apps is the fast credit. These apps use data analytics and algorithms (instead of rigid documentation) to assess your eligibility. They are great for unexpected bills or medical emergencies, because you may receive an approval and have cash in your bank account in a matter of minutes to hours.

2. Less documentation: The times of extensive documentation and multiple bank visits are not gone. Instant personal loan apps only require your PAN, Aadhaar, bank statement, and mobile number. The ability for you to apply online, also makes the process easier for novice borrowers and technology experts.

3. Clear loan terms & pre-approved offers: Many applications show pre-approved loan options with upfront interest rates, terms, and total payback amounts. This easy to see information allows borrowers to compare multiple offers and choose a loan that fits their cash flow and repayment capacity.

Drawbacks of taking out a personal loan for instant loan apps

1. Higher interest rates: While they may appear convenient, fast lending apps generally charge higher interest rates, often ranging from 15% to 24% annually. Since they offer quick dispositions and softer restrictions, this happens because these financing options utilise risk based pricing.

2. Hidden fees and penalty: Some lenders also use processing fees, late fees, or early closure penalties; which can hit borrowers by surprise, and drastically change the total amount. Make sure to read the fine print before you accept any offer.

3. Risk of overborrowing: Since you may receive several offers from a number of lending applications trying to get your business, you may take out more loans than you need, which can result in a debt trap, especially when your EMIs are starting to come in at once.

4. Effect on credit score: When you make payments on time, you will increase your credit score and develop a positive credit reputation; however, on the flip side, when lenders, especially instant loans, declare late payments or defaults, these quickly damage your credit rating, and can stay on your record for years.

Are instant loan apps worth it?

• Yes, if you need some cash fast and you have the capacity to pay it back.
• No, if you do not have a plan to pay it back, or want to borrow for the long term.

For planned consumption, such as business, home improvements, or education, a bank personal loan, with longer terms and lower rates is a safer option.

Tips for smart borrowing via loan apps

• Look at the interest rate, fees, and repayment provisions when comparing loans.
• Limit your borrowing to your needs and avoid impulsively overdrawing.
• Take the right term, with shorter terms, interest fees are a cost savings.
• Set up EMIs by establishing automatic payments, you avoid late fees .
• Scrutinise all the costs and terms by reading the small print.

In conclusion, instant personal loans via apps in India offer never before possible convenience and speed for those times when expenses that are unexpected pop up; however, they are not only expensive in that they will charge a higher interest rate, or additional fees, but they are very convenient terms to enter into.

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Disclaimer: Mint has a tie-up with fin-techs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.