Zooming small personal loans increasing financial stress and defaults

Small-ticket personal loans (STPL) which a decade ago were the pinnacle of the crisis in a similar segment are back with a bang. This time, they are run by finance companies who use analytics-based software to approve and pay low-value loans.

The share of small-ticket loans in personal loans has become five times in the last 2 years which were only 12.9% of the personal loan segment. By March 2020, these rose to around 60%.

A credit of below ₹ 50000 is termed as a small ticket personal loan and this segment has been driving volumes, and growth has been as high as 162% in 2019-20. The primary reason is app-based lenders who entered the market in recent times.

Unfortunately, such loans have seen the maximum stress. A credit bureau CRIF High Mark released a report which states that fintech and neo-age lenders are targeting young, low-income, digitally adept customers who have short term credit needs but have limited or no credit history. The high growth and fishy recovery practices adopted by the app-based lenders compelled RBI to issue a stern warning.

One of the salient features of payday loans (repaid once the salary is credited) is the high-interest rates which hover around 15% per month, which provides the opportunity for lenders to operate even when the defaults are around 10%.

CRIF High Mark reports states that the average ticket size has reduced consistently in the last 2 years, declining by 18% year-on-year by March 2020 even when there has been growth in the portfolio.

If you are planning to take a small loan through these new age loan apps, be very careful before you go ahead. Check the terms and conditions and interest rates and evaluate the background of the company carefully. Don’t get into a debt trap with high interest rate loans that seem easy to get but are toxic in the long term.

If you want to get out of the debt trap, consider loan settlement. Register and talk to our counsellors for more information.

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