A personal loan is just another type of loan offered by banks and other financial institutions to a self-employed or salaried person without any collaterals or security. Finabile provides the best personal loan software to make user friendly and its used by several financial companies. Personal loan software is a flexible application. Individuals primarily take it while they are in a cash crunch and need money to fulfill their personal needs like unexpected expenses, like hospital bills, vacation, consolidation of previous debts, wedding and other important life events, etc..
Personal loans are the most common loan product offered by financial institutions. It has become a prestigious way of sorts to borrow loan rather than resorting to requesting help a friend or relative. Most individuals prefer to undergo the tiresome loan process rather than being underestimated or disrespected by the family members or friends.
Personal loans are offered at competitive interest rates usually to be repaid over a fixed term at flexible EMIs based on tiers (local of your city, the organization you’re employed at).
Though personal loans are collateral free, it doesn’t mean that it is of higher risk to the lender. So, to be honest, it is not exactly as unsecured as it may seem. Similar to every other loan there is no room for delinquency without consequences.
The borrower details collected during the loan origination stage by the financial institution could be used to trace out the borrower, send them a formal notice, bestow credit and financial penalties, file a lawsuit, demand repayment using debt collector and even claim wage garnishment.
The Process Involved
Since there is no collateral involved the verification part is quite tedious when compared to other loans. Though it seems tiresome from a borrower’s perspective, once we realize the reasoning behind the stringent verification process it does indeed get slightly tolerable. Here’s the process involved in personal loan:
- Loan Application
- Document Submission and Data Collection
- Verification Process
- Disbursement or Rejection
- Collection (If the loan request is accepted)
Ideally, a person who is in a cash crunch and prefers to rather opt for a loan approaches a financial institution requesting a loan. Filling out the application and submitting the relevant documents will initiate the loan request.
Also, financial institutions tend to send loan offers to prospective customers based on their profile. In such cases, either a loan officer or a notification would be sent to the prospective borrower. If the person is interested in taking a loan, they would complete the loan application, submit the relevant documents to the financial institution.
Borrowers don’t usually understand that just being offered a loan doesn’t mean that their loan is approved and the amount would be disbursed (unless it is a pre-approved loan or a top-up loan). The financial institution holds power even to reject the application if the results of the verification process don’t fit their prerequisites.
An individual either salaried (public or private sector) or self-employed can apply for a personal loan. The applicant must be between 21-60 years of age with the minimum monthly income of INR 15000 (may vary depending on the financial institution’s norms).
Document Submission & Data Collection
The document submission requirements for a self-employed person who is seeking a personal loan could be slightly different when compared to a salaried professional who’s applying for a personal loan. Here are the list of documents & information to be submitted by people who apply for a personal loan.
- Proof of identity: Aadhar/ Driving license / Passport / Voters ID / PAN card
- Proof of Residence: Utility bill / Rental Agreement / Passport / Bank Statement
- Income Proof: Bank statement reflecting salary credit / Salary slips (Last Three Months)
- 2 – 3 Passport size photographs
- Proof of Residence: Both office and residential address proof
- Proof of identity
- Income proof: Audited financials for last 2 years
- Last 6 months bank statement
- Proof of continuity of business
Once a completely filled application is submitted with the requested documents the loan applicant is on-boarded into the financial institution’s as a prospective client and a verification process is initiated.
Once a client is on-boarded, the application is forwarded to the in-house teams for verification and credit analysis. The verification team takes care of verifying the borrower’s identity based on the identity proof (Aadhar, PAN card, passport, etc.) in the respective online portals and also make visits to either the borrower’s residence or place of work to verify the authenticity of their residence proof.
Simultaneously, the credit risk team checks the credit worthiness of the borrower either using traditional credit scores or alternative credit scoring methods and decide after verifying the genuineness of the financial statements submitted by the borrower.
If the result of the verification process turns out to be positive, the financial institution will process the loan else the personal loan application is declined. The borrower would be informed of the decision, and in case of rejection, the reason for disapproval would be clearly communicated so that the borrower could take measures to rectify those shortcomings.
In case, the application of a borrower is accepted, they would be notified of the status, the loan amount sanctioned, the interest rate and the EMI payable. After this, the financial institution would then request the borrower to submit two canceled cheque leaves to facilitate disbursal.
Once the borrower provides the cheque leaves, the loan amount sanctioned and credited to the borrower’s account (based on the details provided in the application) within 24-48 hours.
There are various repayment options offered to borrowers. A borrower could either leave standing instructions on their bank account (savings or current) to auto-debit EMIs every month, choose to opt for ECS(Electronic Clearing System) or even submit post-dated cheques to the financial institution to collect EMIs every month. The borrower could choose the convenient option out the available ones.
Challenges Faced by Financial Institutions
While it may seem that borrowers face a lot of trouble in the personal loan process, the financial institutions have their own set of challenges to tackle.
The loan documentation is a rather rigid process. Collecting hard copies of all required documents and storing them was a nightmare. When the application is forwarded to various internal teams, the lack of communication between them caused, the frequent manual interventions, and the huge load of paperwork resulted in discrepancies. The manual verification process despite being facilitated by online portals.
Even after the loan was approved, the disbursal took a long time due to stringent norms which demanded approval from all relevant officers before the amount is disbursed. All these issues seemed to make the loan application process rather long and tiresome which instilled a sense of disappointment and frustration in the borrower.
So, the financial institutions have started to automate the workflow using various loan software but the shortcomings of those solutions are causing more dilemma as there is little to no improvement in the processing pace. Here are the key challenges in using an inefficient loan automation tool.
Managing a large loan portfolio using enterprise solutions and cloud-based solutions with limited memory could be troublesome and cause space constraints considering that financial statements might be long making the files a tad bit too big for storage. This may result in a frequent upgrade of memory.
Though there are online portals to speed up the verification, it results in increasing the TAT and injects redundancy to check every borrower in a different portal.
3. Interest rate
The interest rate of a personal loan depends purely on a borrower’s profile. It could be either flat rate or a declining rate depending on the norms of a financial institution. If the software comprises of only a few specific loan products by default there would be a delay in customizing the loan product for every individual borrower.
4. Repayment Update
Updating the status of repayment manually and sending notifications to borrower using a different program could lead to inadequacies and longer process.
5. No Red Flags
Retrieving the delinquencies manually every day and following them up is considered a tedious process. This might end up becoming too time-consuming and expensive in case the delinquencies are not monitored properly due to an inefficient solution. All these challenges call for a tailor-made personal loan software like Finabile, which is a prominent loan software used by top lending institutions around the world.
Why Finabile for Personal Loan Software?
Finabile is a leading personal loan software used by prominent financial institutions. This cloud-ready, user-friendly software could offer your clients a seamless and quick loan experience with it’s intuitive easy to use interface. Here are the key benefits of using finabile to configure a personal loan software product:
- Innumerable users allowed
- Limit-free storage over the cloud
- Role specific pre-defined account configurations
- Streamlined workflow with configurable approval cycle
- Effective document management tool to upload the required documents for each client
- Robust enough to handle fluctuations in your loan volume
- Standing instruction to enter specific comments or notes on a customer’s profile reduces miscommunication.
- Ability to process loan application documents parallel
- Integrated e-KYC and credit rating tool to reduce the TAT of verification
- Configurable mobile and email management to automate notifications
- Customizable loan products for easy onboarding
- Clear color coding to note delinquencies easily
- A number of predefined reports to lineate the evaluation
- Complete transparency of the application makes it easy to audit
Interested in improving your turnaround time, streamlining your workflow and increasing customer satisfaction level? Request a free demo of Finable for personal loan software by clicking here