Personal Loans for the Millennials
Loans are common!
With the growing knowledge among the youth, more and more youngsters are taking personal loans for multiple purposes. Undoubtedly, banks are the big players in offering personal loans. Yet numerous lenders are now available to provide a higher amount to meet your emergency needs.
Youth below 25 years of age are nowadays more attracted towards financial freedom and hence are moving into the world of investing. Some youngsters are already placed at high positions that offer them a handsome salary for investment. But not everyone is capable enough to make a good active income and live a happy life.
For such youth, personal loans are in huge demand.
FACT: The personal loan disbursal has increased from 2.3 times to 3.8 times from FY17 to FY21.
However, investing isn’t the only case of opting for a personal loan. According to one study, nearly 65% of loans are disbursed for two-wheelers, and 35% of the loan is disbursed for consumer goods and electronics (like washing machine, fridge, smartphone, etc.)
Check the image shown below. It clearly shares the knowledge about the percentage of loans disbursed for different purposes.
For youth, the trending loan is STPL (Small Term Personal Loan). STPL is a loan below 1 lakh. More often, these types of personal loans are offered by non-banking firms.
In the last few years, the lenders have increased their pace to offer STPL that has directly increased the loan book size. The outstanding loan amount has also increased by 3.6% to Rs 41,200 crore in FY21.
Many of you would wonder what compels the youngsters to take personal loans? Furthermore, what are the reasons behind the increased number of young adults getting a personal loan? Well, since 2020, everything has almost changed due to COVID 19.
Below are some reasons why youth taking a personal loan has increased.
Global Pandemic: The devastating impact of COVID-19 is already explained to everyone. People are having a tough time surviving this pandemic. Along with working professionals, youths are also affected by this pandemic. Their education is compromised to some extent. That's the prime reason some young adults rely on personal loans to extend their skills and educational qualifications.
Availability of STPL: As mentioned already, STPL is a short-term personal loan that amounts to a maximum limit of 1,00,000. The Younger generation has low requirements, and STPL can fulfill them easily. Hence, they more often opt for a personal loan compared to other options.
Easy and Quick Option of Financing: Among all loan options available nowadays, a personal loan is the easy and quick option that young adults can choose. Most of the youngsters are tech-savvy, which is why they find it a good option to get instant money. Getting a personal loan is just a click away from the techy youngsters.
Multiple Lenders: With increasing competition, multiple banking firms and NBFCs can provide a personal loan. Above all, some firms don't require a strong credit score to avail a personal loan. You can apply for a personal loan and get it credited to your account with a moderate credit score.
High Loan Amount: Getting a personal loan of above 1 lakh is far bigger than expected for many youngsters. Banks and NBFCs offer a personal loan of as high as 25 lakh INR to young adults with good credit scores. With quick personal loan disbursement, the youngsters are capable of using it for different purposes.
Completely Collateral Free Loans: Nowadays, multiple loan options are available that don't require collateral. A personal loan is one of them, and that's a significant role in providing financial support. Being collateral-free loans, the disbursal process is also quick.
Now you have understood the reasons why young adults are inclining towards personal loans. Another question that strikes people is how youngsters are mostly using personal loans.
Well, the research found that most of the personal loan amounts are invested for the following purposes.
Traveling: Where the digital world has covered the entire globe, the young generation is more inclined towards sharing knowledge and following their passion through digital media. Numerous young adults love to travel across the world and share their traveling experiences online. This requires enough funds to manage their expenses. A personal loan is one of the major options young people rely on to get their financial needs and follow their traveling passion.
More often, when traveling, they require some funds in an emergency, and many banks & NBFCs are always available to help you with financial support.
For Big Purchases: Not all youngsters are well educated, and hence they consider a personal loan as a good option to fulfill their dreams and buy the latest gadgets. Lack of knowledge is a major reason for the young generation using a personal loan to buy the latest gadgets.
Experts never recommend using a personal loan for buying the latest technology or gadgets. The gadgets depreciate their value with time, but you continue paying the personal loan. Hence, you should find alternatives to personal loans for buying the latest tech items.
Upgrade Their Lifestyle: Whenever you look around, people are upgrading themselves with the latest trend. For the younger generation, adopting the latest trends has become a norm. They consider taking a personal loan to match the trend and boost their lifestyle. Upgrading their lifestyle means owning a car, brand new clothes, frequent travels, and many more.
How Can Millennials Choose the Right Personal Loan?
The biggest query millennials have in mind is selecting the right lender (banking/non-banking firm) for personal loans. The availability of multiple options makes it tough for young adults to make the right decision. Below listed are some tips that will definitely help you choose the right personal loan lenders.
Check Your Credit Score: If you are planning for a personal loan, it's important first to check your CIBIL score. Your CIBIL score is also known as your credit score, which is considered to evaluate your eligibility for a personal loan. More often, youth under 25-years of age take personal loans for the first time. Hence, their CIBIL score is always good.
However, if you own a credit card or have some past penalties, your credit score gets affected, causing some issues in getting a personal loan. Even with a low credit score, you can get an STPL but high interest rates.
Compare Interest Rates: Undoubtedly, the interest rate of personal loans is higher than other loan options. Yet, different lenders have different interest rates that you must consider when selecting the right lender.
Traditional banks and NBFCs have different interest rates, which you must consider in decision-making.
Check Your Loan Amount: It is a golden thumb rule to take a minimal personal loan. Taking a personal loan for unnecessary expenses is never a good practice. You should evaluate your emergency needs and how much you can repa