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Tata Capital > Blog > Demonetisation and Personal Loans: What is the Equation?

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Demonetisation and Personal Loans: What is the Equation?

Demonetisation and Personal Loans: What is the Equation?

The demonetisation drive left many Indians in a serious cash crunch. The overnight ban on high-currency notes took away most people’s purchasing power. Some struggled to buy groceries and vegetables, while others found it difficult to pay for weddings and international holidays. Banks conducted below-average business as people became hesitant to take loans. Those who already had loans faced a different problem. The lack of cash caused problems not just when it came to spending, but also while making EMI payments. All this took a serious toll on the financial market. This article talks about how the demonetisation drive affected the personal loan segment.

Understanding a Personal Loan

A personal loan is an unsecured loan that involves quick disbursal. It is an ideal choice when you need to address a financial emergency. You could also avail it if you need some extra cash for another purpose. People usually opt for personal loans when dealing with medical emergencies and weddings. However, these loans are also a suitable financial option for funding vacations, expensive gadgets, or home renovations.

Impact of Demonetisation on Personal Loans

Sudha Sharma works as a plastic surgeon’s assistant. ”Many people come to us for corrective facial surgeries, hair transplants, and other cosmetic treatments. Since these treatments are quite expensive, people usually apply for personal loans. However, we saw a major slump in our business over the last few months,” she said. Sudha blames demonetisation for the slump. After all, people have had to cut down on their expenses. The cash crunch forced many people to postpone or cancel pre-planned expenses. This includes cosmetic treatments, vacations, and even family celebrations. Under normal conditions, people would have turned to personal loans for financial support. But they often postponed their plans to take loans as well. So, lenders saw a drop in the demand for these loans.

Drop in Expenses

The worst effects of demonetisation were visible during the end of 2016 and the beginning of 2017. While things are slowly improving now, there are some people who are still recovering from the shock. Most of them are being rather cautious with their money. All this led to a drop in how people were spending their money. Many put off plans to spend on small and large purchases, which added to a lower demand of personal loans.

Impact on the Personal Loan Interest Rates

However, demonetisation has been a blessing in disguise for those looking for a personal loan. Many banks and NBFCs are putting some life back into the business. They have started to offer personal loans at lower rates of interest. This makes it a good time to take a personal loan to fulfill any financial requirements. Perhaps you need to buy expensive camera equipment, or you want to sign up for a diploma course. If you do not have the money to fund these plans, you can apply for a personal loan during this market slump.

The Bottom Line

Demonetisation has had a big impact on the personal loan segment. Despite the fall in the demand for these loans, borrowers are seeing the cut in interest rates as a positive sign. In some cases, it has made personal loans more attractive to potential consumers who are in dire need of quick, easy-to-access funds. So if you need a personal loan to help you meet any of your requirements, this is the best time to get one.

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