Personal loans have now moved beyond covering urgent needs and aspirations of borrowers. They are now increasingly used for emotional and discretionary purchases, financing holidays, gadgets or celebratory events such as anniversaries, birthdays among other life events. This trend underlines a clear shift in how credit interplays with instant gratification and emotion based spending.
Elucidating on the same, Chintan Panchmatya, Founder, Switch My Loans, says “More than 40% of personal loan applications in India are linked to lifestyle and emotional spends—weddings, vacations, home upgrades—rather than emergencies or essentials. This trend reflects a shift in consumer mindset where aspirational needs are driving credit demand. It’s critical for lenders and platforms to factor in this behavioural shift while assessing borrower intent and risk.”
Digital lending makes borrowing impulsive
With the rapidly evolving digital infrastructure in the country, fintech platforms and leading NBFCs such as Bajaj Finance, L&T Finance, Muthoot Finance, Shriram Finance among others are now allowing personal loan disbursals within minutes through their digital applications, thus reducing the waiting time to almost zero.
Due to this, several borrowers apply for and borrow funds impulsively during moments of excitement or grave difficulties. Then due to improper financial planning and lack of financial literacy most of the borrowers end up using these personal loans for non essentials expenses.
Rising defaults on small‑ticket loans
Small ticket loans especially under ₹10,000 are registering higher default rates than larger loans. This is prevalent especially in smaller towns. The gross bad loan ratios for private banks in this particular segment climbed to between 1.42% and 4.7% with pressure expected to ease in gradual fashion as the year comes to a close.
Furthermore, fintech issuers reported a 90 day delinquency rate of around 3.6% notably higher in rural zones (4.1%) than in urban areas (3.3%). These crucial developments are broadly a consequence of improper financial planning, lack of financial literacy along with usage of personal loans for emotion based purchases rather than planned and calculated spending.
However, these vulnerabilities remain concentrated in specific borrower segments and geographies. Taking a broader view, Moody’s forecasts stable asset quality for the nation’s banks, with NPAs likely to remain between 2–3% over the next year, supported by domestic growth and prudent regulatory measures.
Therefore, emotional borrowing can definitely trap individuals in debt cycles. It can also result in a rise in EMIs and a consistent shrinking of repayment capacity.
Due to these factors, not just the borrowed amount but even the repayment capacity and frequency of loan applications now heavily influences credit scores. It is prudent in such cases to adopt budgeting systems such as segmenting income, spending and investments and to clearly draw a line between wants and needs.
Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit scores. Mint does not promote or encourage taking credit, as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
