Are Easy Personal Loans Pushing Young Salaried Indians Into An EMI Trap?

Availing a personal loan has become quite convenient for urban millennial professionals. Need money for a holiday? Swipe right. Want to buy the latest gadget? Swipe left. Aspiring to furnish that new apartment? There’s an app for that. Loan sharks have now been replaced by quickfire online loans that offer instant approval.

Small EMIs may not hurt initially, but over a period of time, they add on, eating into your loanable income more than you anticipate. With the mushrooming of online lenders, questions are being raised about whether easy availability of credit is pushing Indians, who are just starting to earn, towards over-indebtedness.

Jugal Mantri, Executive Director & CEO, Anand Rathi Global Finance, says, “Personal loans today are very efficient, convenient to access, instant and serve the purpose really well whenever you have an emergent need - be it a medical emergency, higher/ professional courses fee, marriage or social functions, bridging of gap/ shortfall to spend on any kind of capital expenditure like renovation of a house, furniture, purchasing electronics (TV, AC, fridge, cooler, microwave etc.) or even planning a vacation.”

As can be seen, borrowing can be a significant facilitator if the borrower acts with a clear objective, carefully weighs their options, and understands the implications. On paper, a small monthly instalment looks completely harmless. It is easily dismissed as a minor expense.

The real challenge begins when these obligations start to overlap - a small EMI for a vacation here, a smartphone upgrade there. Individually, they feel manageable. Collectively, they create a quiet, compounding pressure that silently erodes a monthly salary until there is very little breathing room left.

These days, you can apply for unsecured loans right from your phone or computer with just the click of a button. Instant approvals and one-click checkouts are what millennials have grown up with. While technology to provide loans has advanced at lightning speed, financial education and literacy have not kept up. Lenders have made it too easy for them to lend, and borrowers think they’re being savvy by living off future income today without teaching young brains about the future impacts.

“Young urban earners avail more than half of the unsecured loans originated by fintech platforms. We are already seeing early indicators of this systemic stress in credit performance trends. Unsecured retail loans now account for over 50 per cent of retail loan slippages among scheduled commercial banks. The data reveals noticeably higher impairment levels among individuals engaging in the practice of borrowing from multiple lenders simultaneously,” informs Mantri.

While easy access to capital is a milestone for our financial ecosystem, credit only works when managed judiciously. Young salaried employees must look at the monthly payout and weigh the true purpose of the liability against their actual cash flow. In a world of one-click loans, the most critical financial habit is simple: add up your existing commitments and calculate the total weight of your EMIs before accepting the next offer.

Never look at a loan only by its monthly EMI. Also take into account how much of your freedom you give up when instant decisions trump mindfulness.