Adhil Shetty looks at the reasons why various loans are disbursed differently.
Who would have thought ten years ago that you could get a personal loan approved on the spot with an almost instant disbursal? The growing use of digital technology means that loans are now not only easy to apply for using online applications and through mobile apps, but also are disbursed in equally quickly.
While technology is cutting down on loan disbursal turnaround times, there is still a growing disparity between disbursal of secured and unsecured loans. If you apply for an unsecured loan like a personal loan, credit card loan, etc., the disbursal is much faster than a secured loan like home loan.
In many cases, personal loans are disbursed in less than 24 hours, while with home loans, it can take weeks before the banks are completely satisfied with all aspects of the loan application and the loan is disbursed.
Here is a look at the reasons behind such a disparity in various loan disbursals in this digital age.
Unsecured loans and digital preference
Check any banking website or banking mobile app and you are likely to come across links for instant application and approval for a personal loan. Compared to secured loans like home loans or business loans, unsecured loans like personal loans do get a digital head start.
There are many reasons why an unsecured loan is given digital preference. Partly, it is due to the fact that unsecured loans yield a higher rate of interest to the lender and, therefore, provide better profitability. Another significant reason why personal loans are given digital preference is the fact that such loans appeal to a larger cross-section of borrowers.
Why secured loans score lower on digital preference
Secured loans may be less risky for lenders but the volume of paper work involved means that banks cannot disburse such loans quickly even if they want to. There are various departments involved in approval of home loans, and this is one of the reasons. Banks disburse a home loan only after due diligence including verification of property papers to legal advice and proof of submission of down payment by the borrower.
Unlike a personal loan, which is offered based on the borrower's repayment credentials and financial health, home loans have a much more stringent verification process.
Banks do a complete background check of the borrower as well as the property before sanctioning the home loan. Once the home loan is sanctioned, based on the kind of purchase -- either resale or direct purchase from builder -- the home loan is disbursed after due deliberation.
Extensive documentation, longer turnaround time
Once you submit all property documents, the bank verifies the same with its legal cell department. The lawyer gives the bank a go-ahead after checking all legal details of the sale deed, NOCs, and other property documents.
If the legal cell department is not entirely satisfied, it may need further documentation from the borrower, all of which adds time to the final loan disbursal process. Since property documents are all still paper-based and not digital, all this process is manual.
The KYC and credit history for the personal loan, on the other hand, are all digital, speeding up the process.
Receipts needed for down-payment contribution
When your home loan is sanctioned, the same is not disbursed until you make the required down payment (normally, 20 per cent of the agreement value) as per your home loan agreement value.
So, any delay in making down payment from your side will automatically delay the disbursal of the remaining amount of your home loan.
Disbursement pattern for home loans
Personal loans are disbursed faster because there is only one disbursal process. Moreover, this is directly to your bank account, at times with the same bank, which makes transfers easier.
In the case of a secured loan like the home loan, the disbursal depends on whether you are buying a resale property or an under-construction one.
- Loan disbursement for resale or ready possession: If the property involved is a resale or ready-for-possession, the banks issue a one-time full and final disbursement.
- Loan disbursement for under-construction: For home loans, when the property is under construction, the loan disbursement is linked to various stages of construction as per the home loan agreement.
Advances in the digital age have helped both secured and unsecured loan processes to get fast-tracked. Yet, the amount of paperwork and multiple channels involved in home loan disbursal means that even with new age technology, unsecured loans are disbursed much faster than secured ones. With more and more digitisation of records, it will, hopefully, not be very long before secured loans, too, have processing times in hours instead of weeks.
Illustration: Uttam Ghosh/Rediff.com
Adhil Shetty is the CEO and Co-founder, Bankbazaar.com