Personal Loan: How AI is boosting the lending ecosystem – 6 key points to know

If you are planning to raise a personal loan for any reason, such as for a wedding or a vacation, the process is quite simple and convenient. From exploring different options for instant loans to finally choosing the right lender – almost everything has turned extremely simple and convenient. 

What has made the entire process a cakewalk is the advent of technology, particularly artificial intelligence or AI. There is no denying the fact that AI is transforming the lending ecosystem by optimising processes for the banks as well as for borrowers.

Here we give a lowdown on how technology is transforming the entire lending process.

These are the 6 ways in which AI has transformed personal loan management:

1. Loan approvals: AI algorithms evaluate borrower eligibility faster by analysing credit scores, income data and spending patterns. Additionally, AI models go beyond traditional credit scores, incorporating non-traditional data such as social media activity or utility payment histories.

AI-powered systems can also approve loans in minutes instead of days, improving user experience.

2. Personalised offers: Machine learning (ML) models assess the user data to give customised loan terms and interest rates based on individual financial profiles. AI systems can adjust loan terms in real-time based on a borrower’s changing financial behaviour or market trends.

However, most lenders tend to have pre-written rules that they do not change based on the individual borrower’s profile or requirements.

3. Customer experience: AI-driven tools provide round-the-clock support, helping borrowers with answers to queries and repayment schedules. These platforms also provide borrowers with real-time updates, repayment tracking, and reminders.

4. Behavioural Analysis: AI systems can even detect unusual activity or inconsistencies in applications to spot any potential fraud. Continuous data analysis also helps identify fraudulent activities during the loan tenure, thus protecting borrowers and lenders.

5. Smarter credit scoring: AI can even use unconventional data points, such as transactions on online marketplaces and mobile data usage, to assess creditworthiness. AI enables financial inclusion by assessing credit risk for individuals without traditional credit histories.

6. Probability of defaults: AI can even predict repayment probabilities and borrower defaults, thus helping lenders manage portfolios more effectively.

Based on borrower patterns, AI can recommend restructuring loans to improve repayment likelihood.