Personal loans are certainly among the best financial aids available for the common individual to tackle emergencies that demand a substantial amount of money. For those who are unfamiliar with what a personal loan entails, it is a borrowing tool that allows people to borrow money from different financial institutions. The important thing to know about an instant personal loan is that it is unsecured, meaning that you don’t need to pledge a security against your borrowings. It also offers the flexibility to use funds as per the borrower’s discretion.
The Growth of Personal Loans:
As per the reports from India’s central bank, a large number of Indian citizens applied for a personal loan online to manage their finances between September’20 to September’21. This pumped the credit outstanding on account of personal loan to INR 29.18 lakh crore in September’21 from INR 26 lakh crore during September’20. A 12.1% increase for the personal loan category is a huge indicator of this growing trend. It is staggering when you compare it with the yearly growth in bank loans which stood at 6.7% for the same period.
To understand the growth of personal loans, it is important to see it in the light of the recent big developments, one of the biggest developments here being the global COIVD-19 pandemic. Many individuals had to face financial adversities in the aftermath of this pandemic. People faced a monetary crunch due to multiple reasons including pay cuts, job losses, medical bills, etc. Besides these challenges, the raging inflation also drastically reduced the purchasing power parity of individuals. Personal loans were the primary option for most people who didn’t have enough savings to meet their urgent expenses including pounding medical bills.
Impact of increasing demand for personal loans
We just established the fact that the personal loan category is growing at a phenomenal pace. So, what is the outcome of this increased demand for instant credit? Well, the growth in personal loans certainly means that it will increase the demand in the economy as people will be spending more. However, the growth observed before 2019, during the period between 2014-19 was high because of a consumption-driven economy. The recent development in personal loans segments has also been accompanied by loans against gold which indicates a level of stress in individual income.
The advent of festive seasons had also fuelled the demand for personal loans when the income of people was reducing. The demand for a personal loan also indicates that people and businesses are hopeful about the economic recovery soon. Increased demand for personal loans also opens the door for the entry of new players in the market with better loan options. Most lending institutions are offering personal loans online through various digital channels. People are finding it more convenient to get a personal loan through these channels as it is easy and less time-consuming.
Should you take a personal loan at this time?
A personal loan can be used to fulfill different financial objectives including education, marriage, travel, medical emergencies, etc. It can be your best asset during testing times too. If you require a loan to fund immediate short-term expenses then it is advisable to take a personal loan. Many financial institutions have also eased the personal loan requirement for borrowers to disburse funds instantly. Here are some important factors that you must consider before taking a personal loan.
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- Processing fees, interest rates & prepayment charges
Getting a personal loan is indeed easier than ever. However, most people blindly opt for a personal loan without learning about the processing fees, interest rates, and other charges associated with the loan. A high loan processing fee can certainly increase the cost of availing of a personal loan for you. Always compare and find the best interest rates and processing charges on your loan. Also, be mindful of the pre-payment charges related to the loan in case you are planning to repay the entire amount before your tenure.
- The total loan amount and eligibility criteria
Before you jump into finalizing a financial service provider that offers a personal loan, it is highly recommended that you check their eligibility criteria. Besides this, you must also ask them about the total amount of loan that you can get based on your age, income, and credit score.