Important factors that contribute to evolution of Personal Loan

Since the economic liberalisation in 1991, India has witnessed tremendous growth in various segments, including foreign investment, business, and personal finance. With the growth in jobs and ease of doing business across sectors, there’s been a considerable change in the way the Indian consumer spends. The country’s Gross Domestic Product (GDP) at Purchasing Power Parity (PPP) per capita has almost quadrupled from $1737 in 1991 to $6092 in 2016.

From a financially orthodox mindset of a generation ago, where a loan was considered to be a burden for a lifetime, today’s citizens across mega cities and semi-urban areas are freely exploring various financial products.

A personal loan is perhaps the most commonly sought debt product today. It is an unsecured loan advanced to you based on your credit history, personal income, and your perceived ability to repay the loan. Repayment is usually through Equated Monthly Instalments (EMIs) over a fixed term.

Traditionally, personal loans were used to cover contingencies such as medical emergencies, wedding expenses, or educational shortfalls. But these days people are taking personal loans for acquiring assets such as a car or a house, seed funding for entrepreneurial pursuits, financing dream vacations, and even getting their hands on the latest smartphone.

Over the last five years there has been a significant upsurge not only in the number of loan applications, but also the ticket sizes. There are a lot of factors at play here, of which the following are most important:

1. At the macro level, the country has witnessed steady economic growth since 2004. The RBI has maintained a steady monetary policy and has inflation in check.
2. The GDP has averaged 6.8% growth over the last five years (2013-17) and India is expected to remain among the fastest developing nations.
3. The country has moved from a few public sector banks pre-liberalisation to a huge array of NBFCs which offer competitive rates, personal loan documentation, faster processing, and superior customer service.
4. Credit scoring agencies have reduced the turnaround time on loan applications, making it easier to assess risk from the lender’s perspective and offering a lot of benefits for the applicant, such as reduced interest rates and a waiver on processing fees.
5. More recently, the government’s push for Micro, Small and Medium Enterprises (MSMEs) through the ‘Make in India’ campaign has given a significant fillip to entrepreneurship.
6. There has been a considerable increase in both the skilled and unskilled workforce. This allows leveraging based on income. The range of products and services available at one’s fingertips today has given everyone an aspirational push.
7. The average age of applicants for personal loans has come down and working women account for almost a tenth of loan applications – this number is expected to further grow sharply.
8. Indicatively, interest rates for personal loans have dipped from 13.5-14.5% in 2011-12 to 11.49-12.5% today.

Strong enabling factors make personal loans the financial debt product of choice. The product is constantly evolving, to cater to the growing needs and aspirations of customers. There is a synergy today between government regulations and lender protocol. From instant to pre-approved loans, the Great Indian Consumer story has just begun. For instance, Tata Capital offers loans at a low interest rate, for which there’s no need for collateral. What’s more, the process of getting a loan is quick and simple. And when it comes to repayment, you can choose your tenure and mode of payment.