How AI is Transforming the Personal Loan Application Process

Loan Application Process

Artificial intelligence (AI) is now being incorporated in almost every sphere of the professional world, limiting not just to the software development segment but expanding to the financial sector Loan Application Process too .

Among the many uses and benefits of artificial intelligence are its applications in the financial sector and expanding widely to the personal loan process.

Lenders and non-banking financial institutions (NBFCs) are showcasing an increased adoption of artificial intelligence technology in the loan assessment domain, unlocking whole new and alternative lending opportunities for the credit-hungry millennials of India.

Importance of Artificial Intelligence in the Personal Loan Application Process

A large chunk of personal loans applied by first-time loan applicants in Mumbai and other parts of India is denied by financial institutions as they strictly depend upon a good credit score.

As per a TransUnion Cibil study conducted last year, almost 41 crore credit-eligible Indians turned out to be credit unserved, meaning those who have never taken or applied for any credit from financial institutions, and more than 16 crore of the population were underserved.

While applying for a personal loan, the first parameter a lender or authorities look at is the applicant’s credit score. It is an integral indicator of whether a loan applicant is worthy enough to be extended the loan approval.

A sizable population having no credit score or any credit history strips not only individuals from getting their loans approved but also drives away significant business deals from the financial institutions’ net. 

Here’s when digital transformation comes into the picture.

Artificial intelligence tools are disrupting traditional lending systems, as these technology models can help loan applicants having either poor or no credit score, have greater chances of getting their personal loans approved.

How Does Artificial Intelligence Help with Personal Loan Applications?

  • While lenders have traditionally relied primarily on attractive credit scores, AI tools take a lot of factors into consideration for depicting a loan applicant’s creditworthiness, including their digital footprint.
  • AI offers solutions to those with no credit history by analyzing large sets of data, like the borrower’s income and credit history, and decodes their solvency and repayment tendency, while breaking down the customer’s behaviour.
  • The technology determines an applicant’s creditworthiness by evaluating their purchase history through online transactions, social media activities, utility payments, data points from digital involvements, and sometimes even information like the location of the company where the borrower works, or their college cumulative scores.
  • Such AI tools help lenders get a clearer view of offering borrowing opportunities to those who do not fall under the organisation’s credit net.
  • The tools also aid in the fine assessment of debt analysis of a loan applicant, along with their online loan management and disbursals.
  • Financial lenders have recently started to make use of a gauge known as the ‘Social Loan Quotient’ (SLQ) for measuring a loan applicant’s creditworthiness instead of considering their credit history or CIBIL score.
  • The SLQ uses a mix of AI-based algorithms, digital footprints and traditional data points to eventually provide not only the loan amount but also the rate of interest charged on it, in just a few minutes.

Benefits of Implanting Artificial Intelligence in Personal Loan Application Processing

  • Until only some years back, customers could apply for a personal loan in Mumbai by physically going to the bank and providing the necessary documents, following which they had to wait for about two weeks to get the loan.
  • With AI coming into the picture, the Know Your Customer (KYC) process has eased, and assessments of creditworthiness and the whole application process have dropped to only a few minutes.
  • Routine processes have gotten automated.
  • The speed of the whole process has increased, led by quicker sanctioning of loans.
  • The cost of the organization has also gone down as loan assessment and sanctioning processes are now conducted by automated AI systems, as against employees of such financial institutions. 
  • With the number of people applying for personal loans rising significantly, the process of sanctioning such loans can get tedious. AI tools cut the whole labour process, thereby enhancing the quality of work as well as speed.
  • Further, the use of artificial intelligence in personal loan application processing gives way to an underlined lens on regulatory compliance as well as enhancing security.
  • It can unlock new lending opportunities with the use of predictive analytics tools, which are known to register up to 90% accuracy in the detection of a prospective borrower’s loan repayment behaviours, thereby pulling down cases of delinquencies.
  • AI technology allows quicker detection of misinformation or errors in any of the document(s) provided by the loan applicant for the corresponding personal loan, as they brush through every data level, thus helping lenders reject probable defaulting customers.


The degree of artificial intelligence will only seep more into personal loan processing in financial institutions, given its wide range of abilities, thereby shedding lenders and organizations from risks and losing money.

Frequently Asked Questions

Q1: What role does AI play in the personal loan application process?

 AI streamlines the personal loan application process by automating tasks such as document verification and credit scoring. It accelerates approval times and enhances efficiency.

Q2: How does AI improve the accuracy of credit scoring for loan applications?

 AI analyzes vast amounts of data, including spending patterns and credit history, to assess an applicant’s creditworthiness accurately. This method minimizes errors and ensures fair evaluations.

Q3: Can AI-powered chatbots assist applicants during the loan application process? 

Yes, AI-powered chatbots offer real-time assistance to applicants. They answer queries, guide users through the application steps, and provide instant updates, enhancing user experience.

Q4: Does AI help in fraud detection within personal loan applications? 

Absolutely, AI algorithms detect unusual patterns and behaviors, flagging potential fraud cases. This proactive approach safeguards both lenders and applicants, ensuring a secure application process.

Q5: How does AI enhance the speed of loan approval? 

AI automates document verification and credit checks, significantly reducing processing times. Machine learning algorithms analyze data swiftly, enabling lenders to make faster, more informed decisions.

Q6: Is applicant data kept secure when AI is involved in the loan application process?

 Yes, stringent data encryption protocols and advanced cybersecurity measures are implemented when AI is used. These technologies ensure the confidentiality and integrity of applicant data, prioritizing privacy.

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