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Majority of Indians not averse to taking loans; Here is why

Sunil Dhawan
Two wheeler loan, car loans, home loan, gold loans, personal loan,no-cost EMI

Home Credit India, a local arm of the international consumer finance provider with operations has recently come out with a survey report on the borrowing habits of Indians. The study is conducted by research agency Absolutdata and has been commissioned across 12 cities among 2,571 respondents. The span of the survey revolved around the pattern of savings, spending and borrowing behavior in the country.

The survey from across 12 cities of India across regions revealed that almost 67 per cent of Indians were not opposed to taking loans especially if it fulfils their family’s desire or upgrades their lifestyle. Remember, when hard-pressed for funds, one often resorts to personal loans. Sometimes, taking a personal loan is better than dipping into one's investments earmarked for long term goals.

Overall 46 per cent revealed that fulfilling family needs and their wishes constitute the single topmost reason for people wanting to take a new loan. According to the report, the desire to fulfil the needs and the wishes of the family tops the reasons for taking a loan in the future. Such loans include a car loan, home loan, personal loan, medical loans, travel loans etc. Family orientation and needs are highest among people in Patna (61 per cent) followed by Lucknow (58 per cent), Nagpur (56 per cent) and Jaipur (54 per cent).

The report pins the second reason for most Indians willing to take a loan is to upgrade their lifestyle. The survey revealed that 33 per cent of Indians are willing to take a loan for a consumer durable item such as- Mobile Phone, Television, Refrigerator etc. Be in consumer goods or a big-ticket expense, many resort to opting for a loan. With easy financing options including no-cost EMI,  the popularity of personal loans seems to be increasing.

The other vastly popular loan categories are the two-wheelers (23.3 per cent) and personal expenses (20.3 per cent). This is followed by is for purchase of Cars (12.5 per cent), House (12 per cent) and Gold (10.5 per cent). When asked about the future, 33 per cent of the respondents are likely to take it for consumer durables while personal loans are the next high-interest segment at 28 per cent followed by two-wheelers at 22.8. Agriculture loans (0.7 per cent), credit card EMI (1.1 per cent), Travel loans (1.5 per cent) and Medical loans (3.7 per cent) are the lowest-ranked categories of loans

The city-wise breakup of borrowing habits reveals interesting trends. 33 per cent Indians believe that loans are important to enhance their lifestyle highest being in cities like Mumbai (49 per cent), Jaipur (47 per cent) and Chandigarh (41 per cent). On the converse, lifestyle consideration is the least among people in Ahmedabad (19 per cent) followed by Indore (19 per cent), Bangalore (20 per cent) and Kolkata (20 per cent).

Reasons for not taking loans: While the country is very positive towards loans, a section of the respondents have also not been positively drawn towards the concept of lending and borrowing and therefore have never taken a loan before. The study identifies Key Behavioral Challenges that this section faces. 35 per cent of the respondents say that “Having a loan is a stressful feeling”. The second reason for loan aversion is that 32 per cent of respondents ‘believe in saving and spending’. The fear of not being able to repay is the third reason why people do not take loans, said 32 per cent respondents. The burden of documentation and hassle at 31 per cent is another reason why people do not prefer loans; so, they usually end up borrowing from friends and family, said 28 per cent of the respondents. In fact, among the least important reasons for not taking a loan is that the employer provides with advance salary, if needed (20 per cent), the process is rigorous and time-consuming (25 per cent) and the fear of repercussion in case of a default (26 per cent). Another reason cited for not taking a loan is the lack of awareness of different types of loans (27 per cent)

As a First Time Borrower (FTB), it helps to keep your credit profile in good shape. Generally, lenders prefer extending loans to those who have a good credit score and a decent credit profile. Those with no borrowing and repayment history with credit rating agencies, especially those in the lower-income group, often face difficulties in sourcing loans at a better rate of interest. Finally, remember that any kind of debt is bad for your finances, use it optimally and only when no other option exists.