“Money makes the world go round.” The working-class people, who constitute the majority of the world’s population, need some money from time to time. Unfortunately for them, securing personal loans from banks (both private and public sector banks alike) is not at all an easy task. It is a very tedious and time-consuming process. Banks are not at all common-man friendly (at least as of now). They prefer to give loans only to those individuals who are monetarily well off (like HNIs) and those with a good track record of repaying debts. These two are not the criteria that common folks meet too well.
In this article, we shall see what the challenges faced by common folks in securing personal loans are and what is the alternative to personal loans.
The challenges faced in securing personal loans: The common man has to face these hassles before s/he can secure a personal loan from banks. They are:
- Many levels of approval for a loan: A loan application has to be approved from the lowest to the highest bank authority before it can be disbursed. This is a tedious and time-consuming process. This indicates that personal loans cannot be availed on an emergency basis. They have to be a well-thought-out affair. They require multiple visits to the bank by the customer to keep track of loan application status and to coordinate with the concerned bank staff. There is also a chance for the customer having a stomach-burn if loan application was approved by all the lower bank authorities but was rejected by the highest bank authority. It would be a complete waste of his time and effort.
- Tedious documentation process: The bank will ask many documents for ID and address proof before they disburse loans. Some banks will also demand employment proof and at least the last six months’ bank (income) statements before they disburse loans. The banks demand hard copies of these documents and not online. If you are applying for a loan other than a personal loan, then you will also be asked to submit collateral. Many don’t have their house or other immovable properties (such as a factory) of their own, so they are unable to show collateral and apply for a loan. Even if they have their own property, some people are unwilling to put them at risk by applying for loans (apart from personal loans). Moreover, if any part of the documentation contains incorrect information, the loan application will be rejected instantaneously.
- High-interest rates: The interest rates of banks may be fixed, but they are high nonetheless. They are at least 10% or more. So one must ensure that he/she will be in employment or earns enough until the loan tenure ends. If one is not able to pay monthly EMIs properly, their assets will most likely be seized.
Alternatives to loans:
Line of Credit is an alternative to loans. In this method of borrowing, a person is allocated a credit limit depending on his level of income. He or she can borrow within his credit limit at any point in time. For example: if my credit limit is Rs. 100,000/- and I borrow Rs. 30,000 this month. I can borrow up to Rs. 70,000 (balance) anytime. Once I have paid all my credits with interest, my credit limit gets restored.
The interest for Line of Credit loans varies, depending on the sum borrowed. Large sums attract large interest rates while small sums attract small interest rates. This method of borrowing is similar to a credit card except for the interest on credits that you have to pay. Apart from credit cards, Home Equity Lines of Credit (HELOC) and Business Lines of Credit (BLOC) also exist.
The main advantage in this type of borrowing is that you need to apply only once for a Line of Credit (LOC) and you can borrow umpteen times within your credit limit. In the case of loans, you need to apply separately for every kind of loan. Its other advantages include:
- You can apply online for a Line of Credit.
- Credits will get disbursed within 24 hours of application. No multi-level approval required.
- All the required documents can be submitted online.
- Keeping track of the credit application status can be done at the click of a button in the company’s mobile app. There is no need for multiple visits to any place or to coordinate with people.
- Collateral is not required as your income-level is the only criterion for setting your credit limit.
- The interest rates for Line of Credits are relatively low compared to bank loans. They are only about 2 to 7%, compared to banks’ 10% or more.
If you need money only once (like home loans, education loans, etc) and if you are sure about how much exactly you need, you can go for loans from banks. On the contrary, if you are unsure about how much you need (like in the case of house renovation works) and if you feel you may need to borrow multiple times, you can opt for Line of Credit. Line of Credit is sometimes opted by people who feel bank interest rates are too high.