The Dark Side of Easy Credit
Millennials and the personal finance Dilemma
Personal loans have grown 70% in two years, and the total loan book in the country is ₹40.13 lakh crore. This growth has been driven by millennials. Personal finance for millennials has taken a dramatic turn due to digital transactions and easy credit.
The Millennial Shift: A New Age in Personal Finance
In contrast to their predecessors, millennials' relationship with personal finance has been significantly reshaped by the convenience of digital transactions and the allure of easy credit.
The days of stashing wealth in tangible assets like precious metals and real estate, and maintaining a cautious distance from debt, seem to be fading into oblivion.
The millennial approach is characterized by embracing debt, often in pursuit of present experiences rather than future security.
Unprecedented Surge in Personal Loans
Over the past couple of years, personal loans have seen an unparalleled increase.
Recent reports quoted a study by credit information bureau Equifax and loan selling agents Andromeda, the number of individuals availing of personal loans skyrocketed by over 70% in just two years from March 2020.
The total loan book for personal loans stands at a staggering ₹40.13 lakh crore.
The lion's share of these loans is home loans, with vehicle and other personal loans filling the remainder.
Interestingly, the majority of these loans are being taken out by 'new-to-credit' consumers or first-time credit users.
A whopping 35 million Indians bought their first credit product in 2021, and another 31 million followed in the first nine months of 2022.
Changing Demographics of Credit Consumers
It's not just the growth in credit that's surprising, but also the changing demographics of credit consumers.
A sizeable two-thirds of these new borrowers hail from semi-urban and rural areas where income levels are generally lower than in urban centres.
Furthermore, these borrowers often have lower-than-average credit scores, indicating a possible lack of financial savvy.
Fastest Growing Debt: Credit Cards
Within the personal loans space, credit cards have been the fastest-growing category. Known for enabling impulsive purchases, credit cards seem to be leading millennials into a debt trap.
A trap that they seem to be falling into, willingly or unknowingly.
Reports citing data from debt relief negotiating platform Freed said the loan per customer was ₹5.22 lakh, and the average age of customers had noticeably decreased.
This trend has led to concerns about the potential for systemic risk as Indian bankers increasingly favour retail loans.
Perils of Easy Credit
While swiping a card or availing a quick loan can be enticing, getting out of debt is not as straightforward.
Data compiled by Freed reportedly shows that only 886 customers have become entirely debt-free, while 2,194 continue to be partially debt-free.
These numbers serve as a stark reminder of the challenges that lie in the path of financial freedom.
FAQs
What is the trend in personal loan consumption among millennials?
Recent studies have shown an unprecedented surge in personal loan consumption among millennials. There has been a 70% increase in the number of individuals availing of personal loans in just two years.
Who are the new consumers of credit?
The new consumers of credit are primarily first-time credit users. Surprisingly, two-thirds of these new borrowers are from semi-urban and rural areas with lower income levels.
What are the risks associated with the increasing popularity of credit cards among millennials?
The rise in credit card use among millennials poses the risk of falling into a debt trap.
Credit cards often enable impulsive purchases, which can lead to an accumulation of debt that's challenging to repay.
What is the average personal debt per customer?What is the average personal debt per customer?
The average debt per customer on the Freed platform is ₹5.22 lakh. This figure has been increasing, and the average age of customers has been decreasing.
Millennial Muddle: Tug of War Between Wants and Needs
As the world hurtles towards an increasingly digital future, personal finance trends among millennials are changing at an equal pace.
Easy access to credit, a shift in the demographics of credit consumers, and the rise of credit cards have created a new landscape of personal finance.
While the allure of instant gratification is hard to resist, the long-term implications of debt and the challenges of financial freedom cannot be ignored.
As financial institutions continue to offer easy credit, the responsibility of staying afloat falls upon the individuals.
They have to navigate the tricky path between immediate wants and long-term needs, making decisions that can secure their financial future.
After all, in the game of personal finance, slow and steady often wins the race.
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