Today, taking a loan has become as easy as shopping. In the days to come, all you may have to do is walk to the nearest ATM, check your loan offer, and get instant cash. While such instant loans, or ‘spot loans’, may appear an innovative banking facility, are they really a smart idea for borrowers? Let’s see.

Just like instant coffee and instant food, instant loans are the next big thing in banking. While the concept of spot approvals is not new, and spot loans have been offered under festive schemes for personal loans, car loans and home loans, these new ‘loans on the spot’ are different, with 24/7 access and instant disbursement.

Banks use smart analytics to check your loan eligibility and pull out data to offer these anytime loans. Customers can know their pre-approved loan amount by logging on to net banking, mobile banking or at ATMs, and get instant disbursements on request.

The two most popular loan products on these lines are ‘spot loans’ and ‘e-loans’ offered by a leading national bank and a South India-based bank respectively. The former assures disbursement of a personal loan within a few seconds to net banking customers. Instant car loans are also on offer. E-loans are instant loans where account-holders can login to their net banking account and opt for loans up to Rs.5 lakh instantly.

Are they easy?
Spot loans are a relatively new phenomenon and more financial institutions are likely to hop on to the bandwagon soon.

Just like any other financial instrument, spot loans also have their pros and cons.

Here’s what to look out for:
Know the terms and conditions: Most spot loans offer instant cash in a few minutes, and it is hard to imagine that a borrower would actually take the time to check the loan’s terms and conditions on an ATM machine display.

This can lead to discovery of high pre-payment penalty, higher processing fees, and so on, at a later date.

Don’t take a loan without comparison: To get the best deal, it is smart to compare the loan offers of various banks. But with spot loans, everything is so instantaneous that comparing loans from other service providers may be the last thing on your mind. This can prove costly.

Don’t take too much: Often, the ease of getting a spot loan proves too strong a temptation to resist and you may end up borrowing more than you need.

You may tend to take the entire pre-approved amount as is, without assessing your actual need.

A higher loan always means a higher EMI and more cash outflow as interest.

Think before borrowing
All pre-approved offers aren’t spot loans: You may receive e-mails from your bank offering pre-approved loans. All these may not be spot offers.

The mails are sent to customers based on their transactions with the bank.

But to take the loan, one has to go through the usual procedures and due diligence by submitting income documents and other papers.

There’s a wait involved before you get your hands on the loan amount.

Spot loans are likely to become more popular in the near future, but you should opt for one only after due deliberation.

Study your needs, opt for an amount that you actually require and not what is offered, and be aware of the terms and conditions.

Adil Shetty
This article was published on December 6, 2015, in Business Line (The Hindu)