If you have been following financial news anytime in the past couple of years, it is pretty evident that unsecured loans are gaining back some of the popularity they used to have in the yesteryears. The case used to be that the unsecured loans of those times lured people with low incomes to apply for loans that they couldn’t afford to repay. High-interest rates and a cruel penalty for non-repayment characterized the unsecured loans of the previous era. This often led to a vicious debt trap, from which people weren’t able to redeem themselves. That’s all changed now, and unsecured loans are now more than just viable. They’re popular.
So what has changed in a few years that has caused such a massive surge in the popularity of unsecured loans? Let’s find out!
Formalisation of The Sector
While it is true that unsecured loans are becoming popular, it would be more accurate to say that unsecured loans from established institutes have become popular. Banks and financial institutions have considerably changed their stance on unsecured loans in the past few years, allowing an increasing number of people to afford cheaper loans than what was possible before. Unsecured loans from loan sharks largely still remain unpopular and are used only by people without proper awareness, especially in rural areas. However, with the slow, but the steady formalization of the unsecured credit sector, people have largely gravitated towards unsecured loans, particularly instant loans online.
Development of Credit Scores
The development of credit scores provided by Transunion CIBIL, also called the CIBIL score, along with credit scores provided by other organizations is one of the more important reasons behind the change in the attitude of banks and financial institutions towards unsecured loans. Of course, the risk component that banks face on unsecured loans is considerably high, especially without collateral or security that they could fall back on in case of default. CIBIL scores, and other similar scores, give banks an idea of how credit-worthy an applicant is. This has made the risk analysis for the banks much easier, and with a reliable score to fall back onto, created a much better environment for the institutions to start allowing unsecured loans.
The Boom of Credit Cards
Credit cards are definitely an extremely important part of our day to day lives. The ability to purchase and enjoy now, and pay later which is a phenomenon brought in by the credit cards. It greatly improved the consumer lifestyle and mindset at large. Previously, lifestyle upgrades, or any upgrades for that matter, needed a lot of planning and saving up over a considerable amount of time. This hindrance, all of a sudden, is non-existent, and thus people flocked towards credit cards, and by extension, unsecured loans. The massive popularity of credit cards sometimes led to consumers sometimes overdoing this and ending up having to pay a considerable sum as interest (around 3% per month is the industry average). This considerably costly interest penalty calls for a warning on getting too friendly with credit cards, but they remain a useful instrument in our daily life.
Fintech Solutions & Online Loans: The Best Type of Unsecured Loans
With the rapid rate of growth in technology, it has become possible for people to share data instantly without geographical barriers. This also means that it is now possible to apply for loans, upload the necessary documents, get the loans approved, and get the money transferred to your bank account possible within minutes. This also means no is wasted in physically going to a bank. The best part, however, has to be the cheap interest rates offered by Fintech companies. EarlySalary, the best instant loan app in India, offers quick and hassle-free loans with minimal documentation requirements and interest as cheap as INR 9 a day. Fintech solutions like instant loan apps have definitely made a lot of lives easier, and we have already compiled a list of the best instant loan apps available in India. We are immensely proud to be one of the reasons that unsecured loans, and by extension, people’s lifestyle has grown in our country.
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