Retail loan demand moving to smaller cities from young borrowers: Report

COVID-19 has impacted borrower behaviour pattern with a majority of borrowing shifting out of tier-I cities, demanding smaller ticket loans and millenials accounting for a bulk of retail loan demand according to a joint report by credit bureau Transunion Cibil and Google. The report also underscores the increasing use of technology platforms to borrow in recent times.

An analysis of consumer loan patterns by the credit bureau showed that 49% of new-to-credit retail borrowers are less than 30 years old. Significantly, small ticket lending in increasingly moving out of larger metros with 70% of disbursals from smaller cities and towns. Besides, the preference is for small sizes loans of upto Rs 25,000. Amongst all personal loans has gone up from 10% in 2017 to 60% in 2020, the report noted.

The study also found that borrowers are increasingly relying on the internet to meet their borrowing needs largely caused by the in digital channels following the restrictions imposed during the COVID-19 induced lockdowns.

“Consumer credit demand and access has undergone a paradigm shift over the last few years, with the post-pandemic circumstances having further accelerated this change” said Rajesh Kumar, managing director and CEO of the credit bureau

Technology and digital access is helping lenders locate, reach and engage with new customers, particularly those in smaller cities and towns. In 2020, 77 per cent of all retail loan enquiries were from Tier-II cities and beyond, according to the report. It notes that online searches for loans from non-tier-I cities went up by two and a half times between 2017-2020. Significantly searches for car loans grew at a faster pace at 55 per cent in the second half of 2020 compared to a 22 per cent growth in home loan inquiries through these channels.

As demand for consumer credit, after a brief decline in the second quarter of 2020, it continued to rebound to almost 90 per cent of the pre-COVID-19 levels towards end of the year 2020. Interestingly 55 per cent of users’ surveyed for the study reported using an online tool or recommendation to aid their credit purchase decision.

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