Financial institutions and fintech companies have launched multiple small credit products in India in the past 1-3 years. It is now possible to get loans even on your mobile phone. But how do you pay for this convenience? Here is a look at the interest rate on some of the relatively new lending products compared with what larger financial institutions offer.
Small credit for salaried individuals
Companies such as EarlySalary, Cashe and Home Credit offer small credit. Some call it pay-day loan or cash advance, but it usually refers to short-term unsecured loans. These loans are also available to buy consumer durables.
The tenure is usually 30-90 days and the loan amount ranges from Rs1,000 to Rs1 lakh. Usually, you can take a loan only through their respective apps. Since such a loan is for a shorter duration, the interest rate declared is per month on their app. Interest rate ranges anywhere between 24% and 48% per annum.
These loans also come with a processing charge which is either a percentage of the amount or a flat fee. If it’s a flat fee, then it could be in the range of Rs150-700 depending on the loan amount or 0.5% of the loan amount.
P2P lending platform
Peer-to-peer lending companies such as Faircent, i2ifunding and Lendbox connect lenders and borrowers on their platforms. Usually, the lender is an individual and not a financial institution. The interest rates are between 15% and 36% per annum and the loan amount can range from Rs50,000 to Rs5 lakh. The interest rate is decided based on the credit profile of the customer. Usually, the P2P lending companies take into account your Cibil credit score. The loan tenure is 3 months to 24 months.
What you should do
Banks and financial institutions provide two major types of credit in the unsecured lending category—personal loan and credit card. Typically, banks and financial institutions offer personal loans with interest in the range of 11-22% per annum. However, the loan amount is above Rs1 lakh. Except for the recent Paytm-ICICI Bank tie-up, where the bank is offering loans as low as Rs3,000, no other bank gives loans for such small amounts. Another option is a credit card where you have to pay an interest rate of 22-48% in case you revolve the credit.
Getting small credit on a fintech platform or from P2P lending companies is relatively faster. But it is advisable to not take loans for daily expenses and discretionary spends. If you still want to go for a loan, compare interest rates and processing charges before getting into a product.