Personal Loans Are Growing, But Is This The Right Time To Take One?

Right time to take personal loans

Right time to take personal loans

Presently, the entire world is suffering from the onslaught of covid-19, which initially started in the Chinese city of Wuhan. Since covid-19 spread worldwide, governments had no option but to impose strict lockdown and shut down the free movement of individuals from one place to another. As a result,

  • The business volume of different companies decreased up to a great extent.
  • International flights were grounded,
  • More than 200 million people worldwide were kicked out of the job,
  • The financial well-being of lots of individuals was affected. Many people had to break their fixed deposit or use the reserve cash for meeting basic needs,
  • Those who somehow managed to save their jobs were given reduced salaries.

It’s always painful to move from a larger pay scale to a much smaller monthly or yearly salary. However, due to reduced income, rapidly increasing high inflation, unemployment among family members, low savings, the overwhelming majority of Indians took covid-19 personal loans to meet all essential needs comfortably. As per the RBI data, between September 2020 to September 2021, many Indians applied for instant personal loan and got the requested money. That is why the credit outstanding for the personal loan category increased by 12.1% (from Rs 26 lakh crores to Rs 29.18 lakh crores). At the same time, the overall growth of bank loans increased by only 6.7 %. A careful study of data reveals that the growth in customer debt was fueled by personal loans, loans against gold jewelry & and customer durables. The most surprising thing is that the outstanding loan against gold jewelry increased by 59.1 %, from Rs 40086 crores to Rs 63770 crores (between September 2020 September 2021). Furthermore, the volume of other personal loans increased by 18.2 %, from Rs 717414 crore to 847788 crores.

The Outcome of Extraordinary Demand For Instant Personal Loans Online

Most financial experts and Banks unanimously agree that the expansion of a consumption-driven economy, the increasing demand for personal loans in covid years, and the strong demand for loans against gold jewellery manifest the reduction of income and cash flows of micro, small, and medium business organizations. Because of festive seasons, the need for consumer durable loans and personal loans is increasing fast. The new demand for personal loans is growing because business organizations and companies are hopeful about the revival of the economy and that people’s income will go up in the coming months. The increased demand for gold loans indicates that small business organizations face challenges in day-to-day business operations.

They have not fully recovered from the damages caused by covid-19 in 2020 and 2021. Even in 2022, the new wave of coronavirus is causing havoc in the financial lives of millions of Indians. Due to the reduced movement of individuals from one location to another, the reintroduction of partial lockdown, and restrictive measures, many companies are not getting sufficient business opportunities every day and have struggled with cash shortages. They find it very difficult to manage enough cash for day-to-day business operations and pay for employees’ salaries. Many companies use gold loans to ensure the minimum required cash flow for daily business operations and other essential expenses.

Also Read : How To Manage Your Big And Small Purchases With Personal Loan?

A Comprehensive Overview of Personal Loan Advantages

In 2020 and 2021, 46% of all Indians took loans to meet essential expenses and keep their life going as usual. Unemployment among family members, sharply increasing inflation, salary cuts, and various EMIs forced them to take online personal loans widely available in India. Let’s go through the significant advantages of personal loans.

  • Flexible Eligibility Criteria And Terms And Conditions

Personal loan terms and conditions

Eligibility criteria and terms and conditions of loans determine whether people will take a particular loan or not. It is always easier to get qualified for online personal loans. Salaried individuals need to earn at least Rs 25,000 to Rs 30,000 as monthly income from stable employment and hold an active bank account against their name to apply for personal loans. Self-employed individuals can also apply for online personal loans if they have been running a registered business entity for at least five years and have good business volume.

Due to simple eligibility criteria and terms and conditions, many Indians apply for personal loans and get the much-needed money in critical situations when they are out of funds. Those who apply for personal loans should maintain a sound credit score (from 700-900). Other factors such as stable employment, good balance of income and expenses, loan amount, responsible behavior, creditworthiness, less pending bills play an essential role in approving your application for personal loans.

  • Sufficient Loan Amount For All Purposes

It is one of the prominent reasons why personal loans are popular amongst frequent credit card borrowers. When you apply for a traditional loan, the Bank will ask for its purpose and might reject your application if your logic isn’t convincing. But it is not the case with instant personal loans. You can apply for a personalized personal loan for almost essential expenses such as

  • To pay unavoidable utility bills at the right time,
  • To cover medical costs,
  • To visit a national or international tourist destination,
  • To organize a lavish marriage party,
  • To buy the much-needed goods and services,
  • To repair a home, etc.

Depending upon the information you give to the banker and the provision of the chosen personal loan package, you can get funds from Rs 50,000 to Rs 50 lakhs.

  • Personal Loans With Low-Interest Rates Are Now Quite Rampant.

personal loan with low interest rates

We all know that banks try to reach out to the maximum number of credit borrowers in every financial year to help eligible people with different loan packages and earn benefits in the form of interest fees. The more interest they apply to borrowed money, the more benefits they deserve. The interest rate can make a loan expensive or affordable for frequent borrowers. Different banks offer personal loans in India, and all of them try to attract more and more customers with reasonable interest fees.

By analyzing different loan packages carefully, you can choose a personal loan with the lowest possible interest charges. It allows you to ensure timely repayment of the borrowed money and arrange enough cash for daily/monthly expenses. The good thing with personal loans is that the interest rate remains unchanged throughout the repayment tenure. It helps you save a significant amount of money which you can use for other essential needs.

Also Read : Everything you need to know about Public Vs Private sector banks

  • Low Processing Fees And Prepayment Charges

Most personal loans are available in India with low processing fees and prepayment charges. Although, different banks have different processing fees and prepayment charges for personal loans. But, in general, the processing fee of personal loans may range between 2.5 % to 5%. On the other hand, the loan prepayment charges are likely to go between 1 to 2%. Therefore, you must contact the banker regarding these two and get detailed information before agreeing to a particular loan agreement.

  • The Collateral Free Financial Assistance

It is one of the most essential and highly remarkable benefits of personal loans. The criteria to place collateral against the borrowed money make many middle-class people unworthy of traditional loans available in India. Anything valuable can be collateral such as gold, land, expensive homes, expensive vehicles, life insurance policies, etc. It works as a security against the loan issued to the borrower. The Bank or financial organization has the right to confiscate collateral if you don’t abide by the loan repayment agreement. You need to fulfill the eligibility criteria and agree to the chosen Bank’s terms and conditions to get a personal loan. The Bank trusts your promise to pay back the borrowed money at the right time. If you breach the trust,

  • Your credit score will go down,
  • The Bank will impose a heavy late fine for not repaying the loan at the right time,
  • It can also launch criminal cases against you to recover the unpaid loan amount,

So it’s always prudent to take only the required loan amount and repay the borrowed money with all applicable interest fees at the right time. Doing so will indicate to the banker that you are a responsible person and there is no risk of giving you personal loans in the future.

  • Debt Consolidation Facility

Debt Free Consolidation

  • Have you taken different loans?
  • Are you finding it difficult to deal with various banks and make repayments on different dates in a month?
  • Do you want to combine all your loans & deal with one financial organization?

If yes, you should choose a personal loan with a balance transfer facility. The banker will combine all loans into a new loan at your request. It will help you get rid of different loans simultaneously with possibly low-interest fees.

New RBI Guidelines

The Reserve Bank of India carefully monitors all activities in the financial market, and it gives its observations from time to time. It has recently warned about the asset quality of banks’ retail portfolios and asked them to monitor the basket carefully. Consumer credit declined significantly when the loan moratorium program ended in September 2020. When it comes to credit risk migration, even low-risk tiers demonstrate a sharp decline. The Reserve Bank of India suggests that all banks must closely monitor their retail portfolios and the asset quality of MSME.

Is It The Right Time To Take Out Personal Loans?

Many Indians who are going through financial problems are asking this question and expect a suitable answer from independent experts. But, unfortunately, if you look at the current situation of the financial market in India, many things are not very promising.

  • A new wave of coronavirus has started to affect the lives of millions of Indians. Professionals working in organized or unorganized sectors have begun to return to their home states to prevent themselves from getting infected by the coronavirus and avoid the hassle of lockdown they experienced in 2020 and 2021,
  • Unemployment is at an all-time high in India (7.3%, 8.5% in urban areas, and 7.6% in villages),
  • Due to partial lockdowns and other restrictive measures, business organizations are facing tremendous loss in day-to-day operations,
  • Many people who went to their home states or villagers during 2020 and 2021 have not returned to cities for employment due to various reasons,
  • Many people are still working from home in different industries and getting reduced salaries.
  • Currently, the price of all essential goods and services is increasing fast. It has become challenging for individuals with limited income to fulfill all financial obligations and save some money for future use,
  • Many Indians have reduced all unnecessary expenses without which they can live, such as a premium subscription to different products and services, tours and travels, eating out in hotels and restaurants, buying expensive products from famous brands, etc. This has decreased the movement of money and indicates the grim reality of the Indian economy. It seems that people don’t have extra cash for luxurious needs.

Therefore, experts recommend that you take instant personal loans, home loans, or other financial assistance only when essential. When you are surviving with reduced salaries, bringing a new loan can put additional pressure on your limited budget and make it difficult for you to repay the borrowed money at the right time. Avoid taking a personal loan for luxurious needs as far as possible. It is more important to exercise financial discipline, spend the hard-earned money only on essential needs and save some cash for future use as we never know when the ongoing covid-19 epidemic will vanish. Having sufficient reserve cash, an excellent monthly income, and financial discipline will help you comfortably pass this difficult time without being affected.

Conclusion

In 2020 & 2021, the demand for instant personal loans was all-time high. The onslaught of the coronavirus epidemic, reduced monthly income of working professionals and business organisations, sharply increasing inflation and other factors were the main reasons behind it. Now it seems that 2022 will not be different from the previous two years as the new wave of coronavirus has started to affect our lives and kill business opportunities. The overall situation of employment and the business market is not very promising. The easy availability of personal loans doesn’t mean that you should start taking loans for anything. It would be best if you exercise financial discipline as far as possible and try to increase your income sources. Take a personal loan only when it is extremely necessary to arrange additional funds for unavoidable financial commitments. Never take out a loan to meet your luxurious needs at least for the time being.