Why are loan terms better for women borrowers? Here are 4 key reasons

Financial freedom is extremely important in every individual’s life. Loans and credit cards are some of the popular options for people who are in need of quick cash to cover their finances for a while. However, both of these credit options have a mandatory application process which is first assessed by lenders on the basis of many factors after which the application is then approved or rejected.

It is quite interesting to note that according to recent reports and surveys by Credit Information Bureau of India Limited (CIBIL), it is found that women are better borrowers and are seen to have a higher loan approval rate with better loan terms as compared to men. As much as this is truly remarkable, women borrowers get better loan terms because of numerous factors. Let us have a look:

Lower default rates

According to a recent report by CIBIL, women borrowers are considered to be less risky borrowers and more likely to repay loans on time when compared to their male counterparts. The report also suggests that women tend to have better rates of repayment than men. As a result, lenders are more assured when lending to women and are likely to offer loans at lower interest rates with flexible repayment terms.

Better credit profiles

Female borrowers are known to have better credit profiles when compared to male borrowers. This is due to early repayment of debts and low credit card utilisation ratio which make their profile desirable for lenders. Credit scores are an important factor in loan approval and for getting interest rates. Hence, due to a good credit profile, the credit score of women is usually healthier as compared to men which helps them acquire better loan deals.

Government and financial institutions support

Governments and financial institutions encourage financing for women with the help of various schemes and programmes. Some of the schemes are particularly targeting women entrepreneurs and borrowers that provide subsidies, lower interest rates, and other incentives. 

For example, many banks give concessions in home loan interest rates for women and also provide initiatives like ‘women entrepreneurship program’ for women SMEs. This as a result, provides women to become financially independent and encourages gender equality in credit access.

Focused financial behaviour

As per reports by CIBIL, women borrowers are usually more careful and mindful in making credit decisions. They usually do not borrow heavy debts and consider their financial ability to afford the loan before borrowing which helps them avoid unnecessary defaults in repayments. This is usually not observed in men borrowers and they tend to have higher credit balances or multiple loan applications which can in fact raise default risk.

Source: Paisabazaar, as of 1st December 2024

Challenges despite the advantages

Despite getting better loan terms, women borrowers in general face a lot of difficulties. Women still have restricted access to formal credit, especially in the rural areas and still have low levels of financial illiteracy. Women tend to borrow less even though they are less likely to default as compared to their male counterparts.

In conclusion, it is indeed true that women borrowers are gradually being recognised as more reliable and low risk borrowers which is giving them an opportunity to take steps towards financial independence. However, to take this to a much larger level, education and awareness is the key to promote financial literacy and awareness of credit borrowing amongst women.

(Note: Raising a personal loan has its own risks)