What is Retail Lending?
Lenders cater to different markets using different kinds of products. A major category for money lenders is retail lending. Retail lending refers to loans that are sanctioned to retail borrowers also called individual consumers.
As opposed to a business, if an individual person takes out a loan from a bank, that loan would be a part of retail lending. When a lender lends to a business, that is known as commercial lending.
Retail lending usually forms a large part of a lender’s business. While some lenders focus exclusively on retail lending, there are others that do not get involved in retail lending. Some of the largest retail lenders in India include State Bank of India, ICICI Bank, and HDFC Bank.
Let’s dive into a short guide about retail lending that can help you understand the topic better.
Types of Retail Lending Products
Retail loans are generally of the following categories:
- Personal Loan
A personal loan, as the name suggests, is a loan that is meant to be used for personal reasons. For example, if an individual needs a loan for their wedding, for a vacation, or to meet a medical need, then that loan will be classified as a personal loan.
Personal loans can be secured or unsecured. When a collateral is provided in lieu of the loan that is known as a secured personal loan and the borrower will need to pay a lower interest rate. Otherwise, it will be an unsecured personal loan with a higher interest rate.
- Mortgage and Home Loan
Most homes in today’s time are brought using a home loan. A home loan is essentially a loan that is disbursed so that the borrower can purchase a home. The home loan is usually secured by the house which has been purchased.
Many people confuse a home loan with a loan against property. A loan against property is a loan which is secured by property owned by the borrower. However, the purpose of loan against property can be anything and may not necessarily be to purchase a home. A person can use a loan against property for business purposes or for any other personal reason.
- Car Loan
A common type of retail loan is a car loan. Car loans, as the name suggests, help you to purchase a vehicle. The car loan is usually secured by the vehicle that has been purchased. Usually, car loans have a higher interest rate when compared to a property loan since the value of a car depreciates faster than the value of property.
- Credit Cards
Credit cards are increasingly being used by consumers in India. Credit card debt is usually supposed to be paid completely by the end of a monthly billing cycle. However, it is also possible to carry forward credit card debt at a high interest rate.
The Retail Lending Process
There are five important stages within the retail lending process.
- The Application – This is the stage when the borrower approaches a lender to be considered for a loan. The loan application will contain all the relevant details that the lender needs in order to consider the loan.
- The Evaluation – This is the stage when the lender evaluates that application submitted by the borrower. At this stage, the lender is will review how much risk the loan entails, what are the credentials of the borrower, and so on.
- The Approval – Once a loan application passes the evaluation stage, the approval process begins where the lender decides what the terms and conditions of the loan will be and what the repayment schedule will look like.
- Disbursement – At this stage, the funds will be transferred to the borrower according to the terms of the loan.
- Repayment – The final stage involves debt collection during which the borrower will repay the loan that has been taking according to the terms of the loan.
How Can Legodesk Help?
Legodesk can help during the loan repayment stage. We have built a software tool specially to help lenders collect their dues. Our tool has several intuitive features such as contact management, case management, legal notice automation, and the Feet-on-Street app. This tool helps make the debt collection process easier and more efficient.
Legodesk is trusted by lenders of all kinds including banks, NBFCs, and enterprises. We are a tech-forward startup on a mission to help lenders with their internal processes and supercharge the lending business.
Wrapping Up
Retail lending forms a large portion of the total loans disbursed in India. Several lenders aim to increase their market share in retail lending by tapping new consumers and entering new underserved markets. The retail lending space offers great potential for lenders looking to grow.
FAQs
What is a retail loan?
A retail loan is a loan that is meant for a retail borrower. A retail borrower is an individual person borrowing in their individual capacity instead of for business purposes.
How to increase retail lending in banks?
Banks can improve their retail lending business by marketing their services to untapped consumer segments and by reaching underserved markets in India and abroad. A good way for a lender to grow their retail lending arm is to spread financial awareness with the aim of increasing financial inclusivity and the overall penetration of financial services in developing markets.
What is the difference between secured and unsecured retail loans?
A secured loan is a loan that is disbursed in lieu of collateral. For example, when a person takes a gold loan, they place a certain amount of gold with the lender in exchange for the loan. In case the loan is not repaid, the lender can recover their dues by making claim on the collateral (or the gold in this case).
An unsecured loan is a loan that does not have any collateral. In case the loan is not repaid, the lender does not have any recourse apart from restructuring the loan or approaching the courts of law.
What factors should I consider before taking out a retail loan?
Some of the most important factors to consider include the rate of interest, the duration of the loan, the monthly payments required, and the reputation of the lender.