Why more Indians are failing to repay their loans than ever before—Explore reasons | Mint

Rapid market growth in the lending sector of India has created a new issue where borrower repayment difficulties become more significant. The issue stands as a vital concern for both businesses and individuals because it blocks growth in both economic spheres and stability of finances.

Loans become harder to repay primarily because of increasing living costs combined with limited financial understanding among borrowers. The analysis investigates both the principal reasons behind this escalating problem while detailing its impact on borrowers.

Understanding personal loan repayment

Personal loans provide a single payment to borrowers who must repay the money through Equated Monthly Instalments to extend over a distinct period. EMIs consist of two parts: the original principal amount along with accumulated interest. The flexible features of personal loans remain unnoticed to many people who eventually face payment delays and financial instability due to underestimating their repayment amounts.

Financial experts explain that difficult borrowing conditions created by high interest rates together with limited available loans worsen the payment process.

“The high-interest rates on formal loans, especially for personal and small business loans, add to the burden, making repayments difficult, particularly for those with inconsistent or low incomes, common among informal sector workers. Additionally, poor credit histories and limited access to formal credit further prevent many from securing affordable loans, pushing them towards high-interest informal lenders. All of these factors contribute to a cycle of debt that is difficult to break for many borrowers in India,” says Mr. Mohan K, Founder of TechFini.

In conclusion, three main factors driving India’s debt repayment problems include financial challenges, inadequate lending standards and insufficient financial knowledge for citizens. The creation of a sustainable responsible borrowing framework depends on joint collaboration between borrowers and legislators together with financial institutions.

(Note: Raising a loan comes with its own risks. So, due caution is advised)