Microfinancing can work wonders in countries that have a huge population of underserved and under banked people who are traditionally excluded from financial access. The reasons of this exclusion range from absence of credit histories, subpar credit scores, lack of documentation and identity proof, etc. Microfinancing platforms can prove effective in accelerating the financial inclusion process in the country by offering micro credit packages to the marginalized sections of our society.
But without traditional credit requisites like a CIBIL score, how are these new-age microlending platforms proving credit to the underserved? The answer is by leveraging data science, AI, and ML algorithms to evaluate the risk profiles of applicants. The rise of alternative channels of credit scoring is helping countless underserved individuals achieve financial inclusion.
However, it is essential to ensure a few things before applying for a loan at microfinance platforms:
Keep a positive credit history
A good credit history is a mark of your trustworthiness and ability to repay back loans in time. A favorable credit score is the foundation of a good credit history. Ranging between 300–900, any score above 750 is considered ideal. It is easy to maintain a solid credit score simply by paying your dues on time. You can also keep a healthy credit score by decreasing the number of credit cards you use and never going beyond 30% credit utilization.
Assess different interest rates
To make sure you receive the lowest rate of interest, it is essential to compare the different interest rates offered by various lenders. Interest rates can be easily compared in a number of financial platforms like Paisabazaar, Bankbazaar, etc.
Evaluate every cost
There are numerous costs involved when borrowing a loan such as processing charges, prepayment fee, and late payment fees. This can enable you to manage your finances more effectively and understand whether a loan is worth applying for.
Assess your loan repayment ability
It is imperative to prepare for loan repayment in advance, even before you apply for the loan. This is possible by transferring your income generated from investments directly towards EMI payments. Just make sure that the amount is sufficient to pay back the loan amount. It is also important to assess your miscellaneous financial obligations and debt repayment before borrowing to prevent confusion later.
Evaluate your needs and choose a loan accordingly
Jot down your various needs and requirements. Then figure out which of the needs require financing through a loan. Some general factors for which loans are generally sought include purchasing a vehicle, meeting wedding expenses, paying hospital bills during medical emergencies, buying a new house, etc. You can decide which loan amount suits you depending on the expenses and costs pertaining to your financial needs. Then, choose accordingly.
In today’s unpredictable world, a financial loan can always come handy. Just make sure that you are aware of the various do’s and don’ts and choose wisely before finalizing in taking one. The rise of technology has sprouted new-age microfinance platforms that are seemingly revolutionizing the financial ecosystem in the country by providing credit access to the underserved and accelerating the financial inclusion process in India.
