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WHAT ARE THE REASONS BEHIND LOAN DEFAULTS THESE DAYS?


In India, most of the lenders believe that offering a loan to the applicants with good credit score and regular earnings is risk free but the recent Coronavirus Outbreak has slowdown the economy, reducing the employment opportunities and shattering businesses which have lead to increase the number of loan defaulters in country. People "Apply For Loan" to fulfill their financial needs regarding business, home, studies and many more.

Nowadays, it’s common to hear out about the defaults due to delays in salaries, business downturn as well as job loss. There are so many consequences linked to the loan defaults as it can charge the borrower penalties, dropdown in credit score, risks the ownership of collateral and it gets harder for applicant to qualify for future credit. In this blog post, we have listed some of the top reasons behind loan defaults these days.

  • Late Salary: It is one of the most common reason which accounts for 40% of loan defaults in the country. Whether you are working in government sector or private sector, delay in salary is common. Therefore, borrower has no option to miss out the EMIs when their salary is delayed for a month or two.
  • Loss of Job: As all knows, the recent pandemic outbreak has adversely affected the global economy, businesses were shattered badly and majority of people lost their jobs while sitting in the lockdown. Today, the number of job loss has accelerated and in such scenario borrower is left with no funds to repay his/her current loans.
  • Shattered Business: Business is uncertain as nothing is sure here and you have to expand it in timely manner to lead in the market, so most of the business persons apply for a business loan to run their operational units efficiently. In case of any loss or business failure, the repayments become tough and in the end, it results in loan default.

  • Frauds: It is also one of the significant reasons why loan defaults occur in India. It might sound unrealistic to many people but it is true, some individuals take loan with planned intention to default on loans. However, it is difficult to get approved for loan without having legit documents but still some people manage to do so.

Some of the defaulters become underground so that lender cannot reach them out or contact them to recover the outstanding dues and to get saved from any legal punishment and fines.

Most of the people "Apply For Loan Online" they especially go for unsecured types of loan as it doesn’t require collateral and it is easy to default on such loans as they don’t risk your personal assets. It is most common in Personal Loans, Business Loans, and Study Loan etc. In case of frauds, borrowers don’t pledge any security equivalent to the loan quantum and later they don’t repay their debts.

Hence, to reduce the defaults on loan, lenders need to tighten the eligibility criteria and they must have a thorough check on the applicant’s source of income and his/her repayment history before they apply for a loan.

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