Why Indians Choosing Loans Over Savings
4–5 minutes
Remember the days of the COVID-19 pandemic when uncertainty ruled, and people stuck to their savings for financial security?
Fast forward to today; loans take preference over savings, contended by most of the Indian populace.
But Why the sudden change? The ways of managing finance have transformed in accordance with the recovery of the economy, rising aspirations, and availability of easy credit.
According to government data (available with the lag of a year), the net financial savings of Indian households dropped to Rs 14.16 lakh crore in 2022-23—about 5.3 per cent of the Gross Domestic Product (GDP) compared to 7.2 per cent in the previous year. timesofindia
In this WeCredit blog, we are going to look into how more and more Indians have begun borrowing and not saving and how this change has evolved in different financial behaviours.
The Post-COVID Financial Shift
The pandemic required individuals to keep discretionary expenditures and build savings. Post-COVID, however, all that changed. Consider this example:
Pre-COVID (2020-2021): People saved for emergencies, cut back on unnecessary spending, and hesitated to take loans. The Reserve Bank of India (RBI) surveyed that household savings during this time had increased, with uncertainties of job security and medical emergencies looming.
Post-COVID (2023-2024): A survey conducted by the (Centre for Monitoring Indian Economy) CMIE argued a surge in loan applications, especially incurred for discretionary spending such as travel, electronics, and home renovations. Fintech lenders such as Bajaj Finserv and Paytm reported an increase in small-ticket loans post-pandemic by 50%, showcasing a greater reliance on credit.
The Change: From Savings to Borrowing
Most of them ended up saving more and spending less on job loss and financial insecurity during the pandemic. But now that the economy is refreshed, consumer behaviour has changed. Let’s break down the key reasons behind this shift:
Digital Instant Loans
Fintech innovations bring with them the fact that getting a loan today is speedier and more convenient than ever because of instant loans which are given through digital lending platforms, using very little documentation, making borrowing more attractive than saving.
Lower Interest Rates and EMI Options
While most financial institutions and all the fintech have competitive interest rates on loans, offering somewhere between 8%-12% interest rates on their loans and holding attractive EMI options, The affordability of monthly EMIs encourages people to opt for loans rather than wait and save up for big expenses
Lifestyle Aspirations and Consumerism
Most people in India are affected and shocked by the fact that now they desire a higher standard of living than others. Whether it’s a high-end gadget, a flashy car, or international travel, people have begun financing their dreams through easy loans instead of waiting to save.
Inflation and Decrease in Purchasing Power
Increased costs of living do not allow many people to save but instead of waiting for years to increase enough money, they prefer borrowing money to satisfy their needs right now.
Business Requirements and Investments
Today’s entrepreneurs and small businesses have become more dependent on loans than personal savings to expand their businesses and maintain cash flow while leveraging credit to boost growth.
Types of Loans Indians Are Choosing
- Personal Loans: For weddings, travel, or emergency purposes.
- Housing Loans: A means to acquire property through affordable EMIs.
- Auto Loans: To finance the purchase of a vehicle with no huge down payment.
- Educational Loans: Provides for any sort of higher education, whether in India or abroad.
- Business Loans: For starting or expanding businesses.
- Buy Now Pay Later (BNPL): The popular BNPL concept is very much in trend for online shopping and gadgets.
Advantages and Disadvantages of Choosing Loans Over Savings
Advantage
- Immediate Cash Requirements and Needs
- Realization of Dreams through Funds within a Year and Not Years
- Flexible Repayment Options via EMIs
- Assists in building a strong Credit Score (provided it is paid responsibly)
Disadvantage
- Debt Accumulation with Improper Management
- High-interest Costs Making Purchases Expensive
- Heavy Dependence on Loans Can Affect Financial Stability
How Can Savings and Loans Be Balanced?
Loans can be a quick way to get financial assistance, while savings are important for staying secure in the long run. Here are some tips to help you attain that balance:
- Follow the 50-30-20 rule: 50% of your income should go toward needs, 30% toward wants, and 20% toward savings & investments.
- Borrow only when it’s really necessary: Don’t take on debt for lifestyle expenditure when you don’t have to.
- Emergency Fund First: Save up at least 3-6 months’ worth of expenses before availing of loans.
- Compare Loan Options: Always compare interest rates and terms, no matter what sort of loan you want.
- Keep that credit score healthy: Regular loan repayments will help you qualify for better terms in the future.
Conclusion
There was a change in financial attitude in India from a savings mentality to a loan economy. Loans give people power for faster contentment of their dreams, but responsible borrowing is what ensures financial well-being.
WeCredit selects the best loan solution for you while guiding you in smart financial planning so that you can make wise financial decisions. Whether loans or debt-and-savings balancing advice is needed, WeCredit can help you reach your financial goals!
