Consider this: You are keen on buying the latest smart TV on an ecommerce portal that is selling it at Rs 50,000, after a 27 per cent discount. Despite the steep concession, however, you are falling short of Rs 20,000, as your budget permits expenses up to Rs 30,000.

So, how do you make up for this shortfall? Enter fintech firms like EarlySalary, CASHe, ZestMoney and PaySense among others that offer loans through dedicated apps or websites for such individuals.

Such firms have gained in popularity in the recent months, with many players jumping on to the bandwagon. “Currently, fintech is the big buzz in start-up space. Many players are disrupting the traditional banking space by solving consumer pain points like payments, lending, check-out finance, financial inclusion and so on,” says Akshay Mehrotra, co-founder and CEO, EarlySalary.com.

While there is no bar on age limit of customers, such organisations typically target young, tech-savvy and aspirational individuals looking for relatively small-ticket, short-term loans. “After few consumer interactions, we have derived that nearly half of the user cases include buying holiday or airline tickets and shopping. Average customer is borrowing Rs 15,000, the average salary is Rs 35,000-45,000 a month, while the average tenure is 21 days,” explains Mehrotra. Although the loans can be used to fund a wide range of needs, some restrictions could be placed on the purpose. For instance, ZestMoney does not facilitate loans for purchasing gold.

The workings

The focus is on consumer loans and quick turnaround. “Ours is a completely digital platform which allows customers to take a loan linked to an e-commerce transaction. At the checkout stage, there is an option that lets them pay with the money borrowed through us. We settle directly with the e-commerce portals,” says Lizzie Chapman, co-founder and CEO, ZestMoney.

The process and other terms and conditions could vary as per the fintech firm involved. Earlysalary.com, for instance, is a mobile app-based line of credit. Once you download it and sign in using social media credentials, you will have to share some information and bank statement to start using the credit limit, which is sanctioned after the e-KYC is complete. “Credit limit is subject to many variables, but in-principle you can take up to 50 per cent of your salary as advance cash loan for 30 days,” says Mehrotra, whose firm stipulates a repayment period of seven to 30 days. “Repayment is linked to salary credit and auto deducted on due date. We charge 2 per cent to 2.5 per cent interest per month which is Rs 9 per Rs 10,000 per day,” he adds. In case of ZestMoney, the repayment period is in the region of three to five months. “We are not the lenders. We have tied up with a couple of banks and NBFCs. The interest rates and other terms and conditions are determined by the lenders,” says Chapman.

While evaluating your eligibility and credit-worthiness, fintech firms rely on your credit history from credit information companies as well as other parameters that make up their risk assessment model. “We rely greatly on AADHAAR for verification of identity, in addition to a bunch of other data points. We look at how they interact with us over calls and their CIBIL records to build a risk model. We work closely with the lenders at the backend, though the final call is taken by them,” says Chapman. Your social media conduct too can be a criterion, depending on the tools the fintech firm wishes to bank on. You need to take into account all these factors if you hope to secure a loan through these platforms.

The pros

Convenience and near-instant sanction – the time taken to sanction the credit limit varying from 30 minutes to three days – is the chief benefit that users can hope to derive. Such loans help you obtain the items or services that are not completely out of your reach and can be obtained with a little bit of help. If you are falling short, such platforms can help realise your dreams. If you are a fresher and your bank is hesitant in offering you a credit card, such loans can come in handy.

The cons

As with credit cards, the risk here is that users may tend to overspend simply because credit is easily available, only to discover later that the EMIs are beyond their repayment capacity. “Do not spend beyond your means just because something is available. It is easy to give into such offers both online and at shops, but resist the temptation to do so,” says financial planner Pankaj Mathpal, CEO, Optima Money Managers. Remember, these are unsecured, high-cost loans. Any delay in repayment could push up the loan burden manifold, constricting regular budget and adversely affecting the chances of securing a loan in future. “It is best to keep a budget in mind before you walk into the store or log on to an e-commerce portal,” he adds. Make sure you stick to it instead of giving in to the temptation to buy bigger, better versions. Such loans can offer immense convenience, but ensure that you use them sparingly.

olmdesk@outlookindia.com