Zerodha co-founder Nithin Kamath sees the trend of rising credit card and personal loans and ballooning debt in the next two quarters, which will likely result in a surge in default, uprooting the financial stability of families.
In a post on social media platform X, Kamath mentioned the benefits and drawbacks of borrowing.
“After the pandemic, there’s been a big increase in personal loans and credit card borrowings. The good side of this is the deepening of credit, but the bad side is some people seem to have borrowed too much or borrowed despite not being able to afford it,” he wrote.
Trap of pre-approved loans
According to him, most loans are under ₹10,000 from fintech apps, and the share of people who took a loan due to repeated spam messages from loan apps asking people to take ‘instant pre-approved loans’ remains uncertain.
With this rising use of credit cards and personal loans, the default in payments has increased, too.
“The defaults among this segment that can’t afford to take loans are starting to increase. This data is from CRIF. These delinquencies started to show up in the numbers of banks and NBFCs a couple of quarters ago. So yeah, we’ll get to know the true extent of the problem in the next couple of quarters, Kamath stated.
Nithin Kamath’s advice
He suggests measures such as paying high-interest loans as well as credit cards first.
“If you are in debt, the psychological effects will show everywhere from your personal life to your workplace. Ensuring you get out of debt has to be the first thing you do even before you save and invest.”
A credit card allows you to make expenses up to a certain credit limit decided by the card issuer. It works like revolving credit, wherein you can spend money through a card and pay it off later.
Personal loans may seem like a good option for those who want quick access to funds without providing collateral.
In a nutshell, both credit cards and personal loans are good ideas if exercised wisely and for the right reasons. They can get you money easily and fast, with some flexibility, too, but they have associated risks in case of ineffective management. A thorough study of financial platforms and options available would help avoid the ignominy of default.
