The 5 Most Common Problems Borrowers Face In India
Bank loan advertisements may be bombarding you (borrowers) with information on how fast and effortless their loan processes are, but you already know the scenario isn’t as rosy, and that the real picture isn’t quite the same. Let us explore the most common problems borrowers face in India.
Getting loans from traditional sources in India remains a long drawn procedure, and the industry hasn’t really evolved to serve the borrower the way it should. Fortunately, some other help is on its way. Before we get to it though, let’s try and understand some of the most common problems that are faced by loan borrowers in India.
#1 – Rejection in the first stage itself
It is true that most loan applications do not even pass the first test! They are rejected on criteria like age, income, poor-bank verifications or even proof-documents which do not satisfy the lender’s requirements. To some extent, this can be avoided by making sure that the eligibility requirements of lending banks have been carefully read and by following them accurately step by step.
#2 – The need for collateral
That personal loans are hard to get by is a well known phenomenon. The easily accessible remain secured ones like a car loan, a home loan or something along those lines. Banks are unwilling to give our unsecured personal loans. They may be doing this to mitigate their risk, but in the process ares shutting off many worthy borrowers from the loan ecosystem, depriving them a chance at growth.
#3 – High interest rates on personal loans for borrowers
We just discussed the lack of availability of personal loans in the country. Many banks are unwilling to give out unsecured loans, and when borrowers do get close to getting them, it’s the interest rates that are a turn off. Extremely high interest rates are the dealbreakers. Why pay atrocious rates as high as 18-20%?
#4 – Credit score issues
Traditional banking channels are notorious for their obsession with credit scores like CIBIL. Have a lower score? Or worse, have no credit history at all? You’re in for a hard time if you need a quick loan. It’s a vicious cycle – to build a credit score, you need a loan. And for a loan – you need a credit score.
#5 – Enormous paperwork
A voluminous amount of documentation is involved in the process of borrowing a loan. This can be tedious for many borrowers – as it is a comprehensive process which needs a cautious assessment of a number of documents. However, all the paperwork that goes into the process is not only inevitable, but also essential to avoid any future troubles. The best method to go about the paperwork process is to make a check-list of all the required documents before submitting it to the bank.
However, it’s not like the state of the industry is in shambles. Thanks to rapidly rising solutions like Peer-to-peer (P2P) lending, a lot of these issues are already being addressed. Peer-to-peer lending enables persons to borrow and lend money without the use of an official financial institution as a mediator. It’s like a free market for loans – which means lenders compete with each other to offer borrowers the best rates.
This also allows for more flexibility on borrower credentials – which mean a lower credit score is also welcome on P2P lending platforms. In fact, the P2P industry is fast becoming a reliable hub for loans for people with no cibil score.
As of now, the industry largely works by serving unsecured personal loans. Additionally, since the industry operates exclusively on the internet – the need for paperwork is minimal – with most data taken digitally.
In addition to this, it provides high levels of credibility, access to money on short notices, contains good records of low risks and could even provide good potential returns.
Quite obviously, before borrowing, it is important to understand the benefits and risks of all loan sources before you make your decision!