Measures Consumers Should Take in Light of RBI’s Order on Unsecured Loans
The Reserve Bank of India (RBI) has increased risk weights on unsecured consumer loans to address systemic risk. In light of this, consumers should exercise caution and practice financial prudence. Here’s what you need to know:
Understanding RBI’s Increased Risk Weights on Unsecured Loans
The RBI has recently raised the risk weights on unsecured consumer loans, including credit cards, by 25 percent for banks and Non-Banking Financial Companies (NBFCs). This decision aims to tackle the growing systemic risk resulting from the significant expansion of unsecured retail loans.
Unsecured loans, such as personal loans or credit card debt, do not require collateral. As part of the RBI’s order, lenders are now obligated to implement additional security measures to safeguard consumers from fraud and identity theft.
Ensuring a Strong Financial Position
To navigate this changing landscape, consumers must have a comprehensive understanding of the terms and conditions of any unsecured loan they are considering. It’s important to review these details carefully.
To protect against potential risks, individuals should regularly monitor their credit reports and bank statements for any suspicious activity. Maintaining awareness of one’s financial status is crucial in identifying and addressing any potential issues promptly.
Practicing Financial Prudence
Experts in the finance industry emphasize the importance of increased financial prudence. Rohit Arora, CEO and Co-Founder of Biz2Credit, advises thoroughly evaluating your credit needs and repayment capacity. Exploring diverse credit options and maintaining a strong credit history can help mitigate the impact of higher borrowing costs.
Ajay Chaurasia, Vice President of RupeeRedee, suggests monitoring credit scores for favorable interest rates, making informed decisions about loan purposes, carefully assessing associated charges, avoiding multiple loans, and maintaining a balanced income-to-debt ratio.
Responsible Borrowing and Repayment
Sanjay Agarwal, Head of Retail Division at Edelweiss ARC, highlights the need for responsible borrowing. Borrowers must analyze their credit needs carefully and avoid impulsive buying without considering their ability to repay and account for unforeseen events. Loans must be repaid in accordance with the agreed terms to avoid negative consequences, such as a declining credit score.
Failure to make payments or delays in repayment can hinder access to credit when it is genuinely needed, such as for purchasing a house, an automobile, or pursuing higher education. Planning for financial stability and meeting repayment obligations are essential to maintain a healthy credit profile.
Maintaining a Positive Credit Profile
Yogi Sadana, Founder of Zype, stresses the importance of maintaining an overall credit bureau profile and avoiding defaulting or making late payments of Equated Monthly Installments (EMIs). Such actions can severely impact future credit accessibility, as lenders may tighten their credit policies and become more selective in their underwriting process.
Customers should evaluate non-critical expenses and consider deferring them if the offered interest rates or EMIs do not align with their budget.
By adopting these measures and being proactive about their financial well-being, consumers can protect themselves from potential risks associated with unsecured loans and navigate the changing landscape of the lending industry.
The Importance of Caution and Vigilance
Consumers should also exercise caution when sharing personal and financial information online or with unfamiliar lenders. Protecting sensitive information is crucial in preventing identity theft and fraudulent activities.
It’s essential to make informed decisions about taking out loans and assessing the associated charges. Avoiding multiple loans and maintaining a balanced income-to-debt ratio is also critical.
Experts caution that unsecured loans may come with higher borrowing costs, emphasizing the importance of thoroughly evaluating credit needs to avoid falling into debt. Maintaining a strong credit history, analyzing repayment capacity, and exploring diverse credit options can help mitigate the potential risks.
Adapting to the Changing Lending Industry
The RBI’s order marks a significant shift in the lending industry, highlighting the need for financial prudence and responsibility. As the industry continues to evolve, borrowers must adapt to the changing landscape and implement measures to safeguard their financial well-being.
Regularly monitoring credit reports, bank statements, and maintaining awareness of one’s financial status is crucial in identifying and addressing potential issues.
Maintaining a positive credit profile, avoiding defaulting or making late payments of EMIs, and deferring non-critical expenses can help protect against risks and prevent negative consequences.
Conclusion
In conclusion, the RBI’s recent order to increase risk weights on unsecured consumer loans highlights the need for caution and vigilance among consumers. It’s essential to maintain a thorough understanding of the terms and conditions of any unsecured loan considered.
Consumers should implement measures to protect their financial well-being, regularly monitoring credit reports and bank statements and avoiding impulsive buying. Responsible borrowing, maintaining a strong credit history, and exploring diverse credit options can help mitigate potential risks.
Adapting to the changing lending industry requires a proactive approach, deferring non-critical expenses, and maintaining awareness of one’s financial status.
By following these measures, consumers can navigate the evolving landscape of the lending industry and safeguard their financial well-being.
Disclaimer:
Estabizz Fintech compiled the material in this article using the most recent Acts, Rules, Circulars, Notifications, Provisions, Press Releases, and material applicable at the time. They ensured the completeness and correctness of the material through due diligence. When using this material, users must consult the relevant, applicable legislation. The given data may change without prior notice and does not constitute professional advice. Estabizz Fintech disclaims all liability for any results from the use of this material.
