The market is flooded with unsecured loans. In addition to banks and non-banks, there are lending start-ups and fintech companies that provide easy access to liquidity for those in need. I’m sure you’ve been receiving a lot of phone calls and text messages about loan offers. The pandemic has created liquidity issues for many. People are struggling with income uncertainty and need financial help.
A few years ago, the only unsecured credit products were personal loans and credit cards. Buy Now Pay Later (BNPL) loans are now also available. All of these options are available to the right borrower with just a few taps on the phone’s screen. Enter your personal information, complete the KYC process,
In some cases, you can get loan approval in minutes.
Due to changes in lending regulations, it is now possible to perform the KYC process via video call from home. Gone are the days when you had to stand in line at the bank, submit photocopied documents, and wait days to receive your loan. The RBI should celebrate these progressive regulations that have not only empowered consumers, but also fueled tremendous innovation in fintech, an area where India is a global leader today.
Young people are rapidly turning to these digital loan options. According to the April 2021 Bernstein Report, the total commodity value of his BNPL market in India is valued at his $15 billion. This is expected to grow more than sixfold to $100 billion by 2025.
Since BNPL is a new lending category, its regulations are still shaped to protect customers. There were concerns in this category that needed addressing. The RBI wanted to increase the transparency of loan fees. He also wanted all his BNPL loans to be reported to credit bureaus for credit score calculation.
In August 2022, the RBI stepped in to release new digital lending guidelines. Digital lenders are now required to provide a one-page fact sheet listing all loan costs. Also, consumer data must be reported to authorities. As mentioned earlier, unsecured loans attract higher interest rates than secured loans such as mortgages.How good are they for you given how easily they are available
finance? Credit cards, e-store credit, and now he BNPL will increasingly become the first form of credit for young people. Your first loan of any kind starts your credit history. Educational loans also throw into the mix, but cannot be compared to other options.
These forms of credit help meet immediate needs, such as paying for taxis or buying electronics. For eligible borrowers, they are easy to obtain, easy to repay, and easy to redeem. Credit card transactions may also offer incentives such as reward points, discounts and deals. This is better than cash spending with no incentives.
In India, free EMI is an interesting development as a built-in feature of credit cards. With these, you can buy electronics with interest-free loans that can be paid off in 6 to 12 months. For example, a BankBazaar co-branded credit card gives you free EMI on Amazon and access to laptop, TV, and consumer electronics offers delivered to customers on the first of every month. Most importantly, these forms of unsecured credit also help build a credit history. This is crucial for financial life and forms a key element of the 5S pyramid.
Your credit history is a snapshot of your financial position. No matter what you earn, how much you have in the bank, or where you live, your credit history will remain with you. If you pay off your loan on time, it will positively affect your credit history. Your credit history becomes toxic when you’re in arrears, default on loans, or failing to pay your dues in full. As a country, we are still approaching the concept of a credit score. There is much to be learned about the long-term effects of our credit behavior.
According to BankBazaar’s 2021 Aspiration Index survey, 27% of respondents were unaware that their credit score affected their loan interest rates. We’ll talk more about what a credit score is later. But at this point, you should know that it determines if you can rent, how much you can borrow, and how much it will cost. Unsecured credit is therefore easily available, but it is important to use it in a disciplined manner. Otherwise, your credit score may suffer and your 5S pyramid may be shaken.
Learn more about what credit history is, how it’s scored, and how it affects you. Credits also explain why he needs to reach Serenity, the top of the 5S pyramid with a score above 800.
BNPL loans are a rapidly growing loan segment. They are sold by fintech lenders, large non-bank lenders, e-commerce merchants and even some banks. BNPL has been around for several years. Ride-sharing and food-delivery apps and some e-commerce platforms use them as payment options. These loans typically range from a few thousand rupees to tens of thousands of rupees. The pandemic has caused a surge in demand for BNPL.
This period saw a change in the way people traded.
It happened for two basic reasons.
- Unemployment and salary cuts due to the ensuing lockdown made it difficult for many people to spend their money freely.
- More and more people are turning to the Internet not only to buy essentials such as groceries and utilities, but also to shop freely. These factors contributed to the surge in BNPL.
Loans are exactly what the name suggests. This allows you to buy something and pay later. Merchants (usually someone on an e-commerce platform) can pay from options such as cash on delivery, debit card, credit card, or BNPL. If you choose to pay via BNPL, the payment will be made by her BNPL loan provider and you will need to register a loan account.
You can avoid paying interest and penalties by using the BNPL option and repaying the loan provider later in the interest-free window. There are generally no charges for using this loan and there are no processing fees. As long as you pay your membership dues on time, this loan allows you to defer payments for free. Loan providers make money by receiving cuts from merchants.
Consumers, especially early job bars and money mooners, are looking for simplified micro loans to better manage their regular or occasional purchases. They often prefer borrowers with a good credit history when paying for . But in many cases, in the case of BNPL, lenders are open to borrowers who are not accustomed to credit. But remember that you also have to pay back what you borrowed. If you don’t pay it back on time, your credit history will be ruined.
Excerpted with permission Bees, Beetles, and Money Bugs: The Bankbazaar Guide to the Financial Wild, Adhil Shetty and AR Hemant, Rupa Publications.