No More Burdensome Interest Rate On Small Personal Loans Article

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No more burdensome interest rate on small personal loans

Small personal loans will become cheaper in the next few months. Banks are planning to reduce the payable interest rate from 38% to 18%-25%.

Author: Addi Vardhaman

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People borrow to meet an array of requirements. The desired fund may be big or small according to the requirements. In the banking systems across the world, a small loan amount comes with a higher rate of interest. The hike is due to several reasons. For small loan amount, borrowers hesitate to pledge their valuables as security. Secondly, the rate of default is high in this segment. Default is mainly due to the negligence and callous attitude of the borrower towards the small loan amount. The third reason is the uncertainty regarding repayment.

However, it is not wise to raise an amount that is more than your requirement. Loans are not meant for charity and they should be repaid in the assigned timeframe. So, you have to cut your coat according to the cloth available with you.

Now, the borrowers will have every reasons to cherish as the major Indian lending institutes are planning to reduce the interest rate on small personal loans in the range of Rs. 10,000-50,000. Earlier the payable interest rate was as high as 38% per annum. Now, it will come down to the range of 18%-25%. ICICI bank has already started offering small personal loan at a interest rate par with regular loan plans. Another stalwart of Indian banking system, HDFC is planning to follow the suit soon. This move will be an efficient tool to counter the default rate. Some banks are now having more than 10% default rate in case of loans without any security.

Banks are in an unpleasant situation created by their recovery agents. For the misbehavior of the recovery agents, banks had paid a significant amount as fine in the recent past. Keeping this in mind, they are planning to reduce the interest rate on the small personal loans which will make repayment easier. Lower interest rates will pave the way for lower defaults and better underwriting.

The reduction in the interest rate of small personal loans will be highly beneficial for lower income groups including hawkers, vendors, rickshaw pullers, auto drivers and small-time traders. This section of the borrowing community were finding it difficult to access loans lower than Rs. 20,000 from the banks. The future of gaining more business from this segment will be much more than normal loan plans. Customer who falls in the lowest income bracket and experiences marginal increase in income every year will be highly benefited by this reduction. They will not only access money instantly but also can repay them easily.

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No more burdensome interest rate on small personal loans