Loan apps are services that allow people to borrow money in cases of need or when they cannot afford something. While the idea of credit is controversial, as it can lead to addiction and large life problems, it still helps people solve their daily issues and develop themselves. For example, a person from Africa can borrow money, buy a laptop, learn programming, and earn much more money, which they weren't able to earn without such an initial investment.
Financial technologies form an attractive industry, so knowing how to build a loan app can be a good skill. Here we'll try to explore such apps from the inside: how they work, which features they utilize, and how they can be both beneficial and dangerous. We'll start by analyzing the industry and general information. Let's go!
Main tendencies: Market and development
The Instant loan market, which includes various types of such apps, has about $3.5 billion in it today. See the relative predictions of its growth below, divided by the region. People always need money, and no matter whether you think credits are good or bad, they are relevant, and this is a fact.
Advantages and disadvantages
As mentioned in the beginning, such apps can help one to buy something important and improve their lives. However, they require caution in usage. Let's overview their pros and cons to know it better.
Pros
It's a quick way to obtain money and fulfill some needs, without excessive paperwork and offline visits with queues. So one can use it if they're sure that they can return money in time.
Accessibility of such tools means that
Cons
High-interest rates are typical for such apps, especially microcredit ones. If you borrow, you'll pay more than you've borrowed, and the interest sum can increase each day.
Possible dependency for those who use such apps regularly and cannot manage their personal budgets without them. For such people, regular loans are necessary for their survival, they pay constant interest, and it's hard to break this cycle.
Limited regulation, while making them more accessible, leads to dangers. They act in a "grey" regulation zone. While only a few of them are scams, as they must maintain their reputation to be successful, it's hard to win any dispute in case of trouble. Some of them can even be connected with criminal activity and pose a direct danger to a debtor, which they cannot know in advance.
Hidden fees are possible here, which are usually written in sophisticated user agreement documents, so it's easy to overlook them.
Privacy concerns are also possible in case of security breaches, as borrowers should share their personal information and documents.
It's important to use only apps with a well-established reputation and documentation to avoid serious problems.
Types and examples
While all these apps provide money for users, there are various types of them:
Banking apps can provide credits from banks. This is the safest way to obtain money, but banks usually don't lend it to anyone, requiring proof of income and paid taxes. Examples include most banks with mobile apps, as they usually provide cards with credit limits or direct credits.
P2P loan apps enable people to be both borrowers and lenders, connecting them and allowing them to borrow money and earn interest. A prominent and reliable example is LendingClub.
Installment loan apps provide middle- and long-term loans with clear monthly payments. They usually aim at providing money to those having weighty purchases, such as houses or cars. A good and popular example is Avant, which also issues its own credit cards.
Microcredit apps are the easiest and usually the most controversial way to obtain money. They provide credits almost without documentation but have the highest interest rates. So, they can be used by anyone, but have a high danger of addiction and usually operate in the "gray" regulation zone. They are especially popular in developing countries, and relatively safe examples are Branch and Tala.
Crypto credit apps are those based on selling and purchasing cryptocurrencies, so a borrower obtains money in the form of crypto. A good example is BlockFi which provides a vast instrumentary to work with crypto, including lending and borrowing.
Development peculiarities
As with most other types of fintech apps, instant loan tools calculate various statistical data to estimate the monthly payment and the total sum of loans, save all loans and payments, and provide various documents and references to clarify how it works. See below an app design example from Dribbble to understand what a typical loan app looks like. Here you can save a credit, name it, and monitor all payments.
EMI stands for equated monthly installment, an important element of any debt. It's a fixed sum a borrower must pay to a lender, and it enables you to evaluate your financial capabilities. In addition, each loan app provides various background information, telling customers what to expect and how to organize their activity in the best way.
Such apps collect various user information and require robust security measures. It's necessary to understand that a user is a real person and see their capabilities to pay, enabling the app to evaluate which loan to allow. Therefore, loan apps require a person's passport or ID card and, sometimes, other documents, such as the income statement. All these data must be secured and protected, as each data breach ruins a loan app's reputation.
Another question is the money which will be lent. Will it be the app owner's money from a special budget, as in the bank? Otherwise, the app may be a platform for connecting borrowers and lenders, enabling the former to obtain money when needed and the latter to earn on the interest. In all cases, all money should be insured.
Loan apps, as they deal with risky operations with money, should be properly licensed. Some countries ban such apps that aren't aligned with proper regulations and restrictions, such as the case of the Reserve Bank of India. Therefore, in addition to the fintech developer, you'll need a lawyer to make sure that you comply with local laws in all countries where your app will be allowed to download.
Summary and conclusion
As you see, such apps are controversial, but still very useful and popular. They require a user-friendly interface, credit calculators, and clear documentation about all peculiarities of the application. In addition, they must align with all local financial laws and secure all customers' data. If you are able to provide all these functionalities, your app can actually improve people's lives. As you know how such apps work from the inside now, you can decide to enter this industry and develop your own app.
