Invest in Credit Risk Mutual Fund or not?

The second wave of Covid-19 infection might have settled but the uncertainty infused by the pandemic is still there. Amid this uncertainty, some unique trends related to the borrowing habit among individuals have emerged as a combating measures to adjust to the new normal.

A joint study conducted by Transunion CIBIL and Google titled ‘Credit Distributed’ revealed interesting trends on the increasing reliance of consumers on the internet for purchasing credit products caused by the unprecedented rise in digital adoption by consumers in recent times.

“In India’s post Covid-19 journey back to growth, access to credit is crucial. With more and more consumers now coming online, the demand for credit has also dispersed and moved outside of predictable demographic pockets,” Bhaskar Ramesh, Director, Google India was quoted as saying.

The report identified the significant rise of small ticket (less than Rs 25,000) loans, characterized by searches for ‘phone on loan’ amongst the top trends in India recently. Now this is interesting data as it highlights the inclination of Indians to opt for phone loans, a trend rather new.

Phone loans are a form of consumer loans that help customers purchase a phone on EMI. Given the situation with the pandemic for the last one year, people are increasingly dependent on their devices for remaining connected.

Why is ‘phone on loan’ getting popular?

Reacting to the CIBIL-Google report, Rahul Kumar, founder of The Loanwala (a credit counseling institution) pointed towards multiple reasons that justified the surge in popularity of phone loans.

“Gen Z wants to capture and share every moment of their life on social media. Good quality data (4G/5G) to download and upload multimedia is a must for them. It also believed to add dynamism to their communication. Another reason to invest in good quality phone is entrepreneurship! Easy money through social media platforms and other sources are luring to youngsters,” Rahul said.

To add to this, Covid-19 induced lockdown elevated the demand for digital banking, virtual teaching classrooms, and online shopping – all this causing a demand for good quality phones, added The Loanwala founder.

“The devastating second wave has made it even more imperative for people to remain inside their home and reduce social interactions. In this situation, phones are the primary tool that helps people remain connected. So, people feel the need to have a reliable and feature-rich mobile phone even if it is on the expensive side. Manufacturers and resellers are also realising this,” Adhil Shetty, CEO, BankBazaar.com said.

Consequently, we are seeing an increasing number of financing options that make buying a phone easier and rewarding, he added.

“There’s uncertainty about resuming office. People would like to stay at home and work remotely as much as possible. So a trusted phone is a very handy device,” Nandini (name changed), a corporate communication professional said.

Considering a penny-pincher like me is planning to replace the phone without anything being actually wrong with it. And upgrade to a Rs 15,000+ model says a lot I guess, she added.

How can you apply for phone loans?

You can apply for a phone loan through various lending applications like MoneyTap, PaySense, IndiaLends among others.  Several credit cards, outlets of mobile or electronic goods and banks also offer loans to buy mobile phones.

Elaborating on the average interest rates and tenure on these loans, Rahul said, “Loan amount generally ranges from Rs 5,000 to Rs 2,00,000 and the interest rates applicable to them are around 16% to 36% per annum. The loan tenure is 3 to 24 months.”

Bajaj FinServe is one of the most common lending platform available across India. Some of the leading smartphone brands on the Bajaj Finserv EMI Network include the likes of Apple, Samsung, Xiaomi, Lenovo, Oppo and Vivo.

The eligibility criteria to get a phone is pretty basic. You should be at least 21 years of age and below 60 with a regular source of income.

“If you’re not an EMI Network customer of Bajaj Finserve, you’d be asked to submit your Aadhaar, a cancelled cheque and a signed ECD mandate on your first purchase at any partner store. The loan processing fee starts at Rs 749 and varies as per the phone model,” the company quoted.

Default cases

What happens when one defaults in paying timely EMIs for phone loans? It will directly impact one’s credit score and hamper the future scope of borrowing money from the regularized market.

Also the lender can either take the mobile back or write it off as a personal loan too depending on the severity of the default.