Although access to personal loans has increased, salaried borrowers are still the lenders’ first choice because of their faster approval times and lower rejection rates. This bias results from the credit rating system’s preference for people who have consistent sources of income.
The Shift in Borrowing Patterns
The percentage of borrowers from non-metropolitan areas who have applied for personal loans has increased dramatically over the last four years, from 55% to 75%. The rise in credit score queries from tier-2 and tier-3 municipalities indicates this change.
Disparity in Access to Credit
There is still a sizable gap in personal loans availability between self-employed and salaried people, even with the general improvement in credit accessibility. When it comes to credit accounts, salaried borrowers often have more open accounts than self-employed borrowers.
- Salaried borrowers: 29% have five active credit accounts.
- Self-employed borrowers: 23% have five active credit accounts.
- Average active credit accounts for salaried borrowers: 3.8
- Average active credit accounts for self-employed borrowers: 3.4
Home Loan Approval Rates
The two groups’ home personal loans approval rates also differ, with salaried borrowers having a greater approval rate.
28% of salaried borrowers were approved.
19% of self-employed borrowers were approved.
Credit Score Disparities
When it comes to loan approvals, credit ratings are crucial. Borrowers who are salaried typically have better credit scores than self-employed people.
- Salaried borrowers: Over 25% have an excellent credit score of 770 and above.
- Self-employed borrowers: Only 14% have a credit score of 770 and above.
- Both segments have 32% of consumers with a good credit score.
Age of Obtaining First Credit Card
The age at which individuals obtain their first credit card also varies between the two groups.
- Salaried borrowers: On average, they get their first credit card at 27.
- Self-employed borrowers: On average, they obtain their first credit card at 30.
The Path to Inclusivity
According to Naveen Kukreja, CEO of Paisabazaar, the new data ecosystem and the lending ecosystem’s quick digitalization might be extremely important for growing and diversifying the personal loan industry. This would ensure a fair and equitable financing environment for all borrowers by bridging the gap between salaried and self-employed borrowers.