The inclination of the standard middle class in Indian society to avail loan facility from the bank has triggered the biases towards the personal loan and has led to the growth of credit creation in the economy. Through regulation and credit control mechanisms and policies, the government has facilitated the process of institutionalized credit procedure through churning credit from one bank to another, generating enough cash reserves and regulating the flow of credit in the country. This has led to a general tendency among people to lean towards the personal loan and avoid taking any other form of loan from the banks.
Following are a few reasons why this biased behaviour towards personal loan has prevailed-
- Absence of Collateral Security- The biggest advantage that has worked in favour of this biased approach towards the personal loan is the absence of collateral security. Collateral Security refers to a mortgage material that must be kept with the bank as a guarantee against the amount of money which is provided by the bank as a loan. Sometimes gold ornaments and jewellery are kept as mortgage security and loan amounts are provided against the value of the gold which is kept with the banks. The loan amount is a fixed percentage of the value of the collateral kept. Under the terms of non-payment of the loan, the collateral is seized by the bank. Under personal loan facilities, there is no such scheme and thus the consumers are inclined to borrow money for personal purposes.
- Low and Stable Interest Rates- Through the use of a Personal Loan Calculator a consumer or borrower can calculate the quantum of loan that he is borrowing and the equivalent rate of interest that will be charged on the loan amount. Only those banks maintain a sustainable level of profit who offer personal loans at nominal rates of interest to the borrower. For example- Axis Bank Personal Loan is one of the prime loan facilities in a country like India. Being one of the biggest private lenders in the country the Axis Bank Personal Loan facility offers the lowest rate of interest among all the operating private sector commercial banks in the country. Thus the Personal Loan Calculator is an important instrument used to accurately measure the amount of interest payment that is liable on a yearly or monthly basis.
- Variable Nature of Borrowing- The borrowing tendencies of the borrower change if there is a large variety of loans available with the public. For example- a variety of personal loans like a car, education, business and entrepreneurship etc. offer unlimited opportunities to the borrower to exalt the loan facility and use it to maximize the loan taking potential of a borrower and simultaneously suffice the lender's interest as well.
Conclusion: Thus the increasing biased attitude towards Personal Loan engages customer interest and leads to the development of credit creation in the country.
