Understanding The Indian Credit System

By admin | Sep 17, 2019


The credit system in India has been undergoing a major transformation in recent times. The traditional banking architecture was not sufficient to meet the needs of access and inclusivity anymore. Instead, people have started relying on credible alternatives like NBFCs, Fintech firms & neobanks in order to avail easy, affordable and quick finance. 

As such, it is highly essential to understand the operational basics of the Indian credit system and the different ways in which it can impact your ability to avail loans.


The Fundamentals 

In India, credit (often referred to as a loan) constitutes three basic components: 

- Principal: the total amount borrowed

- Rate of interest: money charged on the borrowed amount and

- Tenure: overall loan duration 

These loans are largely classified as - secured or unsecured. A secured loan requires you to promise collateral, i.e. an asset pledged as security, using which lenders can recover their money in case you fail to repay the loan on time. On the other hand, an unsecured loan does not demand any collateral as the money is usually lent on higher interest rates and smaller repayment tenures. Most Fintechs companies offer loans that belong to this category.



Before you become a part of the formalized credit system in India, you need to ensure whether you are eligible for the same. Most lenders use these criteria to evaluate a loan application:

  1. Credit Score - Essentially a record of all your previous borrowings. A credit score narrates the tale of your credit discipline, repayment ability, and financial responsibility. 

  2. Income Level - The minimum income required will vary. Banks usually prefer individuals earning more than 20k per month. It can be much lower when it comes to Fintech companies. 

  3. Age - If you are aged between 18-45, your likelihood of getting a long-term loan is much higher as compared to someone who is nearing the age of retirement.


Documents Required

The documents required to avail a loan in India are:

  • A loan application form with a photograph

  • Identity and address proof

  • Age proof

  • Bank statements for the last 3-6 months

  • Latest salary slip

For self-employed individuals, a KYC statement and a business certificate might be required.


Benefits Of Availing Credit 

Although there has been a historical tendency to view loans with suspicion, availing them can actually benefit you in many ways. With an instant personal loan app like NIRA, you can: 

 - Build financial credibility by improving your credit score. 

 - Get financial freedom without upsetting your budget. 

 - Avail amounts of your choice in a flexible way. 

 - Payback in small monthly EMIs

 - Obtain tax benefits under the Income Tax Act, 1961. 



Different people tend to have different reasons for availing credit. These reasons can range from purposes like buying a home, financing a child's education, funding a wedding or taking care of a medical emergency. Irrespective of the fact that institutional credit is available in a plethora of customized varieties, the unavailability of credit to a majority of the population in India still remains an unfortunate reality. 

In such a scenario, frictionless digital platforms like NIRA provide the underserved section of the Indian workforce with the opportunity to avail instant personal loans at the lowest interest rates.  NIRA adopts a hassle-free method to ensure the process is quick and efficient. Our goal is to provide financial freedom to the millions of Indians who are neglected by traditional institutions. We believe access to credit is a right that should not be restricted to the select few.



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