In 2023, India’s financial landscape underwent some noteworthy changes, particularly in borrowing habits. The retail lending sector experienced substantial shifts, largely driven by the rising demand among young consumers and the expansion of credit to previously underserved areas. These developments are indicative of a broader trend in which consumers are diversifying their borrowing strategies to leverage emerging financial opportunities.
According to TransUnion CIBIL’s latest Credit Market Indicator (CMI) report, this shift from traditional secured loans to more flexible and accessible forms of credit, like personal loans and credit cards, reflects a deeper understanding of both the opportunities and risks present in today’s financial environment. Younger borrowers, particularly those in the 18-30 age group, have shown an increasing propensity for consumption-led credit products, which is a clear indicator of their growing influence in the market. The narrative of the evolving credit landscape is further enriched by technological advancements, which have made credit more accessible across diverse geographic regions, promoting financial inclusivity.
The shift toward flexible yet riskier credit options like unsecured loans highlights a change in consumer behaviour, especially among younger borrowers who prefer digital ways to access credit. This trend not only shows their growing financial savvy but also highlights the importance of smart borrowing practices. As we learn from the changes of 2023, it’s crucial to borrow wisely in this year. Here are some key strategies to consider for smart borrowing:
Budgeting and planning: Before delving into the world of loans, take a step back to assess your financial landscape. Crafting a budget is more than just a fiscal exercise; it’s about painting a clear picture of your financial life. Include all aspects – your income, monthly expenses, and any existing debts. This comprehensive view helps you gauge how much you can afford to borrow, ensuring that any new debt aligns with your financial capacity and doesn’t lead to undue stress.
CIBIL Score management: Think of your CIBIL score as a financial health barometer. Regularly monitoring it isn’t just a routine check; it’s a critical practice in staying on top of your financial game. By keeping a close eye on your CIBIL score and report, you can quickly spot any discrepancies or signs of fraudulent activities. This proactive approach can be instrumental in safeguarding your financial identity and ensuring you’re always ready for credit opportunities.
Maintain financial discipline: Before you commit to any debt, it’s crucial to do a reality check on your repayment capabilities. It’s not just about whether you can take on a loan; it’s about responsibly assessing if you should. Avoid overleveraging yourself – it’s a common pitfall that can lead to financial distress. Instead, aim for a balance where your debt commitments do not overshadow your financial stability.
Choosing the right product: The loan market is a diverse universe, and not every loan fits every situation. It’s essential to choose a loan product that aligns with your specific needs, whether that’s funding an education, renovating a home, or consolidating debts. Look for terms that suit your financial situation – lower interest rates, favourable repayment tenures, and minimal fees. Remember, the right loan should ease your financial burden, not exacerbate it.
Understanding terms and conditions: Diving into the terms and conditions of any loan is a non-negotiable step. This isn’t just about skimming through the fine print; it’s about thoroughly understanding every aspect of the loan agreement. Pay keen attention to the interest rates, repayment tenure, and any additional fees or penalties. Being well-informed about these terms can save you from future surprises and financial strain.
Emergency fund: One of the cornerstones of financial prudence is building an emergency fund. This fund acts as a buffer against life’s unexpected financial shocks, reducing your reliance on borrowing during emergencies. Aim to save at least three to six months’ worth of living expenses. This financial cushion can be the difference between weathering a financial storm and being swept away by it.
As we step forward, let us embrace these lessons with a renewed commitment to financial wisdom and prudence. The future of borrowing looks promising, and with the right approach, each one of us can play a part in writing a successful financial story for ourselves and for India.
Bhushan Padkil is SVP & Head – Direct to Consumer Business, TransUnion CIBIL.
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Published: 19 May 2024, 01:00 PM IST