In recent years, the personal loan segment in India has indeed exploded. A large number of people are taking bond-free, unsecured credit these days. The market for these loans is increasing rapidly. That evolution is partly due to new technology, changing shopping habits and the economy. Let’s take a look at some important reasons for the boom in such loans and its impact on the financial landscape.
1. Digital Transformation and Fintech Revolution
In India, personal loans are gaining popularity. Why is that? That’s thanks to digital finance. Fintech companies and online lenders are also simplifying the loan acquisition process. They leverage technology like AI to determine if you qualify in a matter of a few minutes. That means faster approvals and shorter waiting. And, traditional banks are also getting in on the action. They provide quick personal loans via apps and online banking. Aadhaar-based e-KYC makes it super easy to see if customers are real.
2. Changing Consumer Behavior and Lifestyle Aspirations
Personal loans were fuelled by India's expanding middle class and the young working demography. Generation Z and the millennials are experiential-oriented, lifestyle-and-convenience-improving customers who are upgrading to spend money on travel, electronics, remodelling their homes, and weddings. The ‘Buy Now, Pay Later’ (BNPL) culture, where people borrowed money for e-commerce purchases to pay back later but often for discretionary expenses, allowed spending habits to change as they became comfortable with borrowing for them. That shift in mindset has been instrumental in driving demand for personal loans.
3. Growth of the Gig Economy and Self-Employed Borrowers
Unprecedented growth in gig economy workers -- freelancers, small business owners, and self-employed professionals -- marks a new face of India’s workforce. We train on data until October 2023. But fintech lenders have used alternate sources of data, like GST filings, bank statement, and digital transaction history to establish creditworthiness. This has indeed allowed gig workers and self-employed to secure personal loans and added further growth to the sector.
4. Economic Uncertainty and Emergency Funding Needs
The COVID-19 pandemic made it clear that these systems are precarious, leading to a surge in personal loans being taken out to cover medical bills, unemployment and other sudden expenses. As for the economy as a whole as it continues the post-pandemic timeline the uncertainty will have people looking for solutions before a crisis hits, demand for personal loans remains at historic highs.
High inflation and rising living costs have also led to greater reliance on credit. When borrowers need immediate assistance, they turn to personal loans for short term cash flow adjustments, debt consolidation or for last-second emergencies without having to cash in investments.
5. Competitive Interest Rates and Flexible Repayment Options
Lower rates of interest offered by banks and non-banking financial companies (NBFCs) are one of the prominent reasons for the growing demand for personal loans. The lenders are offering ensured low interest rates therefore, individual credits are picking up inside the best case as the Reserve Bank of India (RBI) is holding itself up from bringing liquidity measures and arrangement rates. Apart from this, lenders are also available with flexible repayment schedules (customized EMI plans, moratoriums, top-up loan facilities, etc.). Another benefit of personal loans is that borrowers can customize their repayment tenures according to their financial situation, which brings down the burden of repayment, this makes personal loans a viable option.
