Personal loans have increased rapidly in the past few years. In January 2024, the personal loan segment widened 21% year-on-year. In recent times, there has been a credit bubble which is alarming.
Personal loans offer various benefits, including the flexibility to use them for various needs, not requiring collateral since they are mostly unsecured. They provide an easy application process for accessing them, among many other advantages. In today’s day and age of materialism and individuals with high disposable income, personal loans have gained popularity for an improved lifestyle.
Individuals can use such loans for a range of wishes, including vacationing, purchasing gadgets, pursuing education, financing weddings, covering medical treatments, improving their homes, and more.
Current trends in Credit Space
The changing trend can be witnessed in the escalated use of credit cards and EMI as well. The Indian Economy has evolved drastically from being scared of debt overburden and avoiding the use of credit cards. The shift was witnessed post covid from 5.5 crore active credit card users in 2019 to 10 crores in 2024. In Feb 2024, India issued 100 million credit cards.
Buy now, pay later has been heavily adopted in the Indian economy. It has eased up the purchase of high-cost items. So the new age fintech companies like Slice and Amazon Pay are providing free credit cards and encouraging credit payments like never before. With several rewards and cashbacks, aspiring young Indians are having the time of their life.
Banking in India seems to be suffering now. First, the convenience of online banking and now the shift from depositing money into fixed deposits to investing in stocks, SIPs, etc. So, banks are dependent on personal loans because of the high rate of interest on them. Due to less cash flowing within the banks, they have to make get a higher rate of interest from any loan they disburse.
Government Regulations on Personal Loans
In such a scenario, regulation is essential. For this, RBI has certain guidelines such as the digital lenders should not have access to the media, contact lists, call logs, etc. They can only have access to camera, location, etc. Digital lenders must give the facility to borrowers to complain, it should not collect any biometrics, banking. Hence, NBFC must ensure that all the repayments or loan services must be done directly from the borrower’s bank account, etc.
RBI’s new norm is to make personal loans costlier after noticing the trend. It is a matter of concern since there is an indication of debt overburden and potential debt traps for households. It also creates a risk of a slower economy and inflation. Credit card comfort can very easily make one overspend without feeling the burn in their pocket.
The stacking up of credit card bills is helping the GDP by increasing consumption. But an individual needs to be mindful when it comes to loans to avoid unwanted situations.