Summary: The increase in the level of default is rising in the personal loan sector. This article advises to deal cautiously with the high interest loans.

The lifestyle in urban India is changing rapidly. The burgeoning Indian middle class is now the target audience of the major multinationals. With the increase in disposable income in the hands of young Indian, changes have been noticed in the expenditure patterns. The luxuries of the early nineties are now the necessities. With the increase in sales of white, brown and grey goods, the consumer appliance sector is also witnessing an unprecedented growth.

The easy availability of credit has pacified the situation. 'Buy now, pay later', 'buy in easy installments', 'pay Rs. 1 take home a laptop'- all these facilities has made the living room of IT savvy Indian youth, the showcase of high end gadgets. But it has its flip side also. This has lead to excesses and precipitating defaults. Once in defaults, there could be a fallout of circumstances beyond one’s control.

Many of the youth belonging to the increased disposable income group are now spending 30% of their take-home salary to pay off some debt. From here starts the problem. It's quite natural to avail personal loans to finance the requirements but falling in the debt trap kills the financial health all together. The logic is that, when somebody is spending 30% -40 % of his take-home for repayment of loans, a meager amount is left for lifestyle and other living expenses. And then, If he spends another 30% on consumption, then that leaves little money for his goal management. In case of any urgent need, he has to borrow again and is caught in the vicious circle of debt, default, higher interest rate and collapse of financial health.

Before taking any personal loan, you should be aware that it comes at an interest rate around 25% per annum. If your salary is around 30K and you have taken a loan of Rs. 3 lakhs, near about 12K is gone per month as installment. You have to meet your day to day expenditure too. According to the laws of income, once the expenditure level witness an upward trend, it barely comes down. So, meeting your expenses at 18K becomes too difficult.

Personal loans do not offer any tax benefit. You can avail tax benefits on home loans and loans against property. But, borrowing personal loans can not denied due to their unique nature of addressing all the necessities and hassle free processing. Still, you should be careful in repayment and borrow according to your requirements.

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