Personal Loan Market Behavior in India

Changing Trends towards personal loan with Banks and customers approach.

The personal loan market in India has witnessed significant growth in recent years, driven by rising disposable income, increasing financial inclusion, and the ease of digital lending. Here are the key trends shaping the market:

1. Market Growth & Demand

The personal loan market has been growing at a CAGR of 20-25% over the last few years.

The demand for small-ticket loans (₹10,000 - ₹2 lakh) is increasing, especially among salaried employees and gig workers.

Digital lending platforms and NBFCs (Non-Banking Financial Companies) are fueling growth by offering instant, unsecured loans.

2. Changing Borrower Profile

Young Borrowers: Millennials (25-40 years) and Gen Z are the biggest consumers, preferring loans for travel, gadgets, and lifestyle needs.

Salaried vs. Self-Employed: Salaried professionals dominate the market due to stable incomes, while self-employed individuals face slightly higher interest rates.

Tier 2 & 3 City Growth: More borrowers from smaller cities are opting for personal loans due to rising aspirations and digital accessibility.

3. Purpose of Borrowing

Medical Emergencies - A major driver post-pandemic.

Debt Consolidation - Many use personal loans to clear high-interest credit card debts.

Wedding Expenses - A cultural factor in India where families prefer loans over depleting savings.

Education & Skill Development - A growing segment, especially among young professionals.

Home Renovation & Consumer Durables - Increasing adoption for upgrading lifestyles.

4. Interest Rates & Loan Size

Interest rates vary from 10% to 24% depending on the borrower's creditworthiness.

Loan amounts range from ₹50,000 to ₹50 lakh, with higher limits for premium customers.

Loan tenure is typically 1-5 years, with some lenders offering up to 7 years.

5. Digital vs. Traditional Lending

Digital lenders & Fintechs (e.g., KreditBee, PaySense, EarlySalary) dominate small-ticket loans with quick disbursals.

Banks & NBFCs still hold a major share in high-ticket loans but face competition from digital players.

Buy Now, Pay Later (BNPL) is emerging as a short-term alternative to personal loans.

6. Credit Score Awareness & Defaults

Borrowers are becoming more credit-conscious, but a large segment still lacks awareness.

Delinquencies (defaults) remain low among salaried borrowers but higher among self-employed individuals.

Lenders use alternative credit scoring (e.g., transaction history, digital footprints) to assess first-time borrowers.

7. Regulatory Impact

RBI's digital lending guidelines ensure better transparency and borrower protection.

Stricter KYC norms and cap on NBFC lending rates impact unsecured loan approvals.

Co-lending models (banks partnering with fintechs) are increasing affordability and reach.

Future Outlook

• Personal loan penetration is set to rise, driven by improved financial literacy and economic growth.
• AI-driven lending will enhance approval speed and risk assessment.
• More customization in loan products based on spending habits and credit behavior.