Small-ticket loans made easy

While start-ups are making it easier to borrow, one needs to choose carefully

If you want a small loan to buy a mobile phone worth Rs 10,000 and don’t have a credit card, there’s little chance any bank or non-banking financial company (NBFC) would lend you the money. For them, processing such an application will cost much more than the interest they charge you. However, many financial technology start-ups have entered this space. They not only offer small loans but also disburse the amount in less than a day. Unlike banks, they are also willing to lend even if you don’t have a credit score.

App-based lender EarlySalary, for example, provides loans ranging from Rs 10,000 to Rs 1 lakh for a duration of seven to 30 days. The company claims that the approval takes 10 minutes and for the first time, the loan is sanctioned within an hour. If you are registered user, the loan is disbursed instantly. They applicant needs to upload a copy of the PAN card and bank account statement. Along with the credit report, the company also evaluates the applicant based on Facebook and LinkedIn profiles.

“We have an underwriting model where we pull up data from social networks. It can give us insights into the education, job, location, gender, age, and many other data points. Based on this, we can predict many things such as salary of the applicant. Along with this, if the applicant gives permission, our app can get location and other details,” says Akshay Mehrotra, co-founder & CEO. He calls this a lifestyle loan.

There are other companies like ZestMoney and Finomena that gives loans as low as Rs 5,000 to shop at e-commerce companies. While EarlySalary has an NBFC, ZestMoney and Finomena has tied up with lenders.

Abhishek Garg, co-founder of Finomena, says the company primarily caters to young professionals but also provides loans to students. “We avoid loans for lifestyle products and lend money only for appliances, mobile, laptop and furniture, that will help the borrower,” says Garg. The loan amount can be between Rs 5,000 and Rs 1 lakh for up to one year. The company also lends to students after a reference check with parents. While the person needs to submit a bank statement, Finomena also uses digital footprints to evaluate the applicant. Garg says their model has 20,000 parameters to gauge an application. So, if a student does a part-time job, and the money is reflected in the bank account, he has a better chance of getting a loan.

ZestMoney has tied up with e-commerce companies to offer loans on any product to any shopper for a purchase ranging between Rs 5,000 and Rs 1.5 lakh. Lizzie Chapman, co-founder of ZestMoney, says the shopper gets immediate approval on checkout. Later, the company evaluates the applicant based on credit report and other parameters such as social networking profiles. Both the companies offer flexibility to their customers. For example, borrowers can choose their date of equated monthly instalment and also method of repayment. If they feel that the borrower missed a repayment due to a genuine reason, they even waive off penalties.

Financial planners say that traditional thinking of saving first and then buying don’t apply on youth. They want instant gratification. “They, however, should understand that if they default on these loans, the financial institutions will report it to credit bureaus and they can face problems when going for a housing or car loan in the future,” says Lovaii Navlakhi, founder and chief executive officer, International Money Matters. He adds they also need to be aware if they are spending now taking a loan, they will need to anyway cut corners in the future to be able to repay the loan.