Personal loans move beyond emergencies as borrowing behaviour evolves

People now trust their own earning power, investment discipline, and future opportunities

• SIP inflows in January crossed Rs 31,000 crore, up 17 percent YoY
• Young borrowers tap personal loans for investing, lifestyle
• Credit is now seen as a strategic tool, not just for emergencies

Did our AI summary help?

India’s mutual fund story is now well-known. Savers are becoming investors, using SIPs to create wealth. In January, as per AMFI, SIP inflows exceeded Rs 31,000 crore, up 17 percent year-on-year. What’s not very well understood, however, is that disciplined investing is now also making Indians more confident borrowers, who are now leveraging their wealth, compounding growth, and—while they’re at it—enjoying life on their own terms. Here’s what we have learnt from this behaviour.

Psychologically Speaking

Personal loans are often seen as loans availed only during emergencies. But things are changing. The new generation of EMI native, affluent, young borrowers have a relaxed relationship with credit. They expect quicker solutions to their problems. If they need to borrow, so be it; it isn’t a taboo. They prefer convenience over cost. Having consumed content from plethora of financial influencers, this generation of borrowers is also money-literate and credit-savvy, leading to excellent repayment behaviour.

Bear in mind that speed carries risks which need to be understood. Borrowing against future income assumes stability. The smartest borrowers understand this and budget for disruptions such as income loss. They understand that personal loans are unsecured, carry a higher rate of interest than secured loans, and therefore need to be handled with care.

Protecting Wealth

Think about it. There’s an opportunity before you. It could be a real estate deal, the chance to study abroad, or a premium camera to improve your creator channel. You need cash. You could liquidate an investment, pay capital gains tax, and use the proceeds. But your need may be a short-term one. That makes liquidating a value-generating asset, such as a mutual fund, an unappealing proposition. Why disrupt the compounding? It may seem counterintuitive to many, but affluent borrowers are borrowing because they don’t need money. They are borrowing because they have the confidence in their own wealth, income-generating ability, and the visibility of steady cash inflows. These strengths can now be leveraged. Therefore, the mutual fund remains invested, and the loan becomes the financial accelerator, not a source of financial stress. If there is stress—like loss of income—the borrower knows they could fall back on their wealth to close the loan.

Let's also understand behavioural risks. Easy access to credit can blur the line between strategic borrowing and lifestyle inflation. Investors must also avoid situations where a mismatch between assets and liabilities can strain their finances. In essence, wealth is being leveraged and reflects growing financial confidence, but it works best with strong cash flows, disciplined repayment, and a clear understanding of risks.

Growing Wealth

The question then arises: what are borrowers doing with these loans? What’s the end use? Firstly, the availability of unsecured credit such as personal loans or overdrafts gives borrowers confidence that they can act on investment opportunities at short notice. For instance, in places like Hyderabad, Chennai and Bengaluru, borrowers seize real estate opportunities using personal loans[RK1] , which give them liquidity at short notice unlike secured loans that may take longer on account of procedural vetting.

We’re seeing a pronounced shift among customers aged 33 to 40, who are increasingly deploying personal loans to bridge critical gaps in homebuying. For many in this bracket, typically mid‑career, dual‑income and financially aware, the decision is less about affordability and more about timing. Home loan processing, while increasingly digital, still requires substantial documentation. In contrast, personal loans are instant, collateral‑free and predictable. Customers are using them to fund down payments, registration charges or construction expenses, enabling them to lock in properties at the right moment rather than postpone decisions. Similarly, and these aren’t new use cases, borrowers also use unsecured loans to fund upskilling certifications and education and expanding a business. In the orange economy, creators fall back on short-term credit for needs as varied as foreign travel or purchasing recording equipment.

Enjoying Wealth

Affluent borrowers constantly seek the finer things in life. What does someone with everything aspire to? But even if a loan is needed, one’s needs may also be non-financial. Anecdotally, we have seen a borrower’s follicular aspiration take them to a hair transplant clinic in Istanbul. A salaried executive giving her home a much-needed luxurious makeover with imported furniture. A trader who’s worked hard to provide their family for decades giving themselves a tummy tuck in line with their health aspiration. An early jobber who’s worked hard the last few years treating herself to a Taylor Swift concert. Would Indians express themselves so freely if not for the confidence of the wealth created through instruments such as mutual funds?

A useful way to read this shift is as a sign of growing financial self-belief. Households are treating credit as a strategic tool rather than a distress response. People now trust their own earning power, investment discipline, and future opportunities. As this mindset spreads, the interplay between savings and borrowing will be an engine of upward mobility, shaping consumption, careers and wealth creation.

In summary, I see great financial maturity in young customers, but all money matters require careful planning. Financial discipline is critical to the success of the best-laid financial plans. Investors must factor in interest and avoid overleveraging. Used wisely, credit enhances wealth.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.