Online vs. Traditional Personal Loans: Which option offers better rates and flexibility?

Personal loans have become a popular choice amongst people who want quick cash to meet their financial obligations or just need some extra funds for a celebration or a luxury vacation. With flexible eligibility criteria and minimum documentation, personal loans are a great choice if you want quick access to funds.

Many banks and NBFCs have started offering personal loans at attractive rates. Personal loans are offered both online as well as by traditional banks. Let us understand these offerings in detail so that you can have the best deal which suits your budget.

Online personal loans

Online personal loans are offered to you by banks and NBFCs which include an online application process that can be completed at the ease of your home. With features like eKYC and digital documents verification, your personal loan application can be approved in no time and as a result you can save your precious time by eliminating branch visits.

These loans also offer you instant personal loans which are preapproved and provide instant loan disbursement. Online personal loans are preferred by the younger generation because of its online procedure.

Offline personal loans

This type of personal loan is offered by banks and involves the traditional method of visiting the branch for the application process. In this traditional method, KYC documents have to be submitted in hard copies along with all the necessary forms that need to be filled physically which may consume a lot of time. The main benefit of going for an offline personal loan is that you get an opportunity to meet the bank officials and get help from them.

Online vs traditional personal loans

We will be analysing this on certain parameters which include the application process, interest rates, customer experience and many more. Based on this, you can then have a better understanding of which suits your lifestyle better and which one would be more convenient for you.

Customer experience

Online personal loans: If you approach for an online personal loan, you get an approval within a short time, as well as the disbursal of the funds. Such personal loans usually offer convenient customer services where you can get assistance through the web portal in case of emergencies.

Traditional personal loans:If you approach for a personal loan the traditional way, you can enjoy a personalized experience. This is because you can directly approach your relationship manager who will guide you with the entire application process and assist in every step. However, the process can be longer, you may need more than one visit and sometimes loan approvals and disbursements may be delayed.

Interest Rates

Online personal loans: NBFCs provide you with online personal loans which offer interest rates slightly lower than the established banks. It is even easier for you to compare the interest rates from one online platform to another to get the best rate.

Traditional personal loans:Your credit score, loan amount, and your relation with the bank plays an important role in this approach. The interest rates may be higher as compared to the online personal loans due to many factors such as operating expenses and other charges.

Application process

Online personal loans:In online personal loans, you get the advantage of completing the application process online without having to visit the lender’s branch physically. The application process is quick and easy to complete and all documents can be submitted online stress free.

Traditional personal loans:In order to complete the application process, you will be required to visit the nearest bank branch. This process includes paperwork and physical filing and submission of documents which can be quite time consuming.

Convenience and loan disbursement

Online personal loans:The loan disbursement is quite quick because of the instant application approval. Hence, you may get the funds within a few hours post approval. This makes the entire process quite convenient for you as a user.

Traditional personal loans:The loan disbursement in this scenario may take time as you will be required to visit the branch from time to time to complete the formalities and the application process. Hence, the funds may not be easily available as compared to online personal loans.

Expert’s take on online vs traditional personal loans

Sameer Aggarwal, Founder & CEO, Revfin said, “Online personal loans have emerged as a game-changer in the financial sector, offering unmatched speed, accessibility, and convenience through robust digital infrastructure. They play an important role in driving financial inclusion by reaching underserved customers whom traditional banks often overlook. While conventional bank loans come with legacy systems and rigid processes, online platforms provide seamless, tech-driven solutions that cater to the diverse needs of today’s borrowers, enabling quicker access to credit and empowering a broader demographic.”

The Co-founder of CashKaro and EarnKaro, Rohan Bhargava also gave his expert opinion and said, “The digital age has transformed the lending landscape, with online personal loans gaining significant traction. Their swift approval processes and minimal documentation requirements, often limited to identity, income, and bank statements, make them ideal for urgent financial needs. Disbursement within 24-48 hours caters to unexpected expenses or time-sensitive opportunities. The rising popularity is evident, with digital loans’ share in total retail loans increasing from 1.8% in FY22 to an estimated 2.5% in FY24. Projections suggest further growth to 5% by FY28, driven by the convenience factor. However, this convenience often comes with higher interest rates, particularly for individuals with lower credit scores.”

“Traditional bank loans, while offering lower rates for those with strong credit histories, can be more time-consuming and bureaucratic. I believe in balancing convenience and cost-effectiveness. By leveraging technology and data analytics, we can streamline processes, reduce costs, and offer competitive rates. Ultimately, the choice between online and traditional loans depends on individual needs, Bhargava added.”

You must also note that personal loans in general offer higher interest rates than other loans available in the market. Hence, evaluate your needs and then only make a wise decision to avoid any future regrets and debt traps.