Questions That Bother You While Taking A Collateral-Free Instant Loan!

Do you spend sleepless nights worrying about finances? You are not alone. People have been facing this since ancient times. However, today’s digital era has found a quick solution, and that is, Fintech. Emergencies may occur at any time, and your pocket may not always be with you. How will you overcome this? Find a suitable app and apply for a personal loan. The money will be credited to your bank account instantly. Oftentimes, these are collateral-free.

Now, you may doubt the process, especially when you do not have to pledge any assets like property or gold. Several questions may appear in your mind. Nothing to worry about. Here are some explanations.

1. What is the meaning of a collateral-free instant loan?

Generally, when you apply for a loan in a traditional bank, they ask for a security deposit. You must submit either gold, car, property, etc., that are considered collateral. The bank can take charge of your submitted assets if you are unable to repay the loan within the time.

However, Financial companies nowadays do not demand these deposits if you apply for the loan through their apps. Instead, they process the application quickly. If you are used to the traditional banking process, you may find this ‘too good to be true’.

You should know that these finance companies assess your credit score and income. It gives them an idea of your ability to repay. So, they approve your application.

2. Are these apps legal? Can I trust them?

There are ways to know if the app you are accessing is legal or not. Check their license details on their app or website. Verify if they are RBI-registered or if they work with licensed Non-Banking Financial Companies (NBFCs). Legitimate Fintechs will cover all these criteria.

If you are unable to find any of this information, then the company is not trustworthy. Always remember that authenticated companies will never demand unrealistic fees or deposits. So, do not go by flashy advertisements. Be careful and calculative.

3. Is this fishy? Why are they not asking for collateral?

It is natural enough for you to wonder why the company is relying on you so much. Why are they not asking for a security deposit? It is technology, dear. Digitalization has made everything possible. These companies work in a completely different manner. The moment you submit the documents, they get to know your creditworthiness based on,

• Your CIBIL score

• Your bank statement

• Your pattern of using the app

• Your employment details

• Your social media activities

So, these apps are assessing your digital and financial behavior as the ‘virtual collateral’. Instead of relying on physical assets, they are managing everything technologically.

4. Still not convinced. Will this affect my credit history?

It is a valid concern. Once you press apply, the app will start looking for your credit value, leading to a ‘hard inquiry’ on your credit report. If there are multiple such inquiries, your score may be negatively affected.

However, if you repay the amount within the time, your CIBIL score will automatically improve, as you will become a responsible borrower. So, do not miss payments. It will damage your score, making it difficult for you to borrow money again in the future.

5. Is the interest rate unrealistic?

Here lies the trick. Unlike traditional banks, some companies will approve your amount instantly, but charge high interest rates. They may reflect attractive daily or monthly rates, which will add up to a very high percentage. So, it is always wise to check the APR (annual percentage rate) before finalizing the application.

Also, compare the options available. Verify any hidden charges, like late payment penalties or processing fees. Some organizations offer low rates if your credit profile is good.

6. What will happen if I am unable to repay on time?

You are not wrong. It is the most common worrisome question that occurs in almost every borrower’s mind. The consequences of delaying the payment are,

• The interest rate may increase.

• There may be additional penalties.

• Legal troubles and an adverse effect on the credit score.

• Repeated calls from the company’s collection agents.

If your problem is genuine and you can prove it, most renowned lenders can help you by extending your repayment tenure or restructuring the loan. However, you must inform them before missing the payment, and not after.

7. What documents do I need to submit? Is my data secure?

The best part of taking a Fintech loan is paperless documentation. But this leads to increased concerns regarding the safety of the data. When you approach an app to apply for a loan, you permit it to access various data on your phone. Some examples are,

• SMS

• Location

• Contacts

• Call logs

• Bank transactions

• App usage

This process of accessing your data indeed speeds the loan approval process. However, there is a privacy concern. So, to be safe, read the security and privacy policies of the organization minutely before applying.

8. Is there any possibility of getting scammed?

Yes, there is. The possibility of availing instant loans has also attracted people with wrong notions. Some favorite ways used by these fraudsters for scamming are,

• Creating fake apps for loans that help to steal the customers’ data

• Charging high fees

• The illegal practice of money collection

Be alert to avoid these fake companies. Always download apps from authenticated app stores, check their reviews and ratings, verify the company’s credentials, and do not pay any upfront fees.

9. What if I get trapped in debt?

It is a genuine concern. Instant loans are addictive. You may feel tempted to borrow money repeatedly, which can lead to continuous debts. You may keep borrowing from multiple apps to repay the existing loans. This practice is dangerous.

How will you avoid this? Always calculate the amount you genuinely need and borrow only that much. Before applying, chalk out a clear repayment plan. Do not fetch these apps for purchasing unnecessary stuff.

10. What will happen if I lose my job before repaying the loan?

You can never predict your job security. As most instant loans depend on your current employment status, a sudden loss of a job can create trouble. What you can do is,

• Think about income insurance.

• Try to keep an emergency fund.

• Borrow an amount that you can repay from your savings in case of an emergency.

• Inform your lender about any job change.

Making the right decision is necessary. Some points that you must consider while taking a collateral-free instant loan are,

• Borrow responsibly

• Plan your repayment

• Do proper research

• Read every detail minutely

• Keep yourself informed

• Maintain records

Conclusion:

The pros and cons of collateral-free instant loans must be clear to you by now. It is indeed a trustworthy financial tool for a responsible borrower. You get quick access to funds when needed the most, build a good credit score by repaying on time, and so on. However, this same process can prove to be dangerous if you are not well-informed.

If you are in dire need of money and know very little about Fintech, take the help of financial advisors. Try to keep yourself updated. Only then will these instant loans become helpful financial tools rather than leading to stress and worry!