Medical crises main trigger for personal loans in Indian cities: Report

Personal loan

• Medical emergencies drive 11 percent of personal loans, higher in Tier 1 cities
• 36 percent borrow for aspirational needs, 16 percent for business investments
• Just 7% fully grasp credit scores' effect on loan approval and pricing.

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Medical emergencies have emerged as one of the leading reasons for availing personal loans in urban India, highlighting gaps in health insurance coverage and rising out-of-pocket costs, according to a new consumer research report released by Paisabazaar.

The study, The Personal Loan Story, found that 11 percent of borrowers took personal loans to meet emergency healthcare and medical expenses. The proportion was higher in Tier 1 cities at 14 percent, compared to 10 percent in Tier 2 and 8 percent in Tier 3 cities.

The findings suggest that despite growing awareness of insurance, many households continue to rely on unsecured credit during medical crises.

The report is based on a survey of around 3,000 personal loan borrowers in 23 cities. It analyses borrowing triggers, credit preferences, decision-making behaviour and awareness levels across regions, city tiers and age groups.

Apart from healthcare needs, borrowers cited day-to-day essential expenses, urgent home repairs and weddings or celebratory events as reasons for availing personal loans.

Growing aspirational needs

Borrowing patterns are no longer driven only by necessity. While 48 percent of respondents took personal loans for essential requirements, 36 percent borrowed to fund aspirational needs and 16 percent for business investments.

Borrowers in Tier 3 cities were found to be 2.4 times more likely to borrow for daily needs compared to those in Tier 1 cities, underscoring higher vulnerability to income and expense shocks.

While self-employed borrowers continue to use personal loans for business purposes, the study found that 9 percent of salaried individuals are also tapping personal loans to support family businesses, side ventures or passion projects.

Middle-income households emerged as the most active segment for aspiration-led borrowing. Borrowers earning between Rs 7.5 lakh and Rs 10 lakh annually recorded the highest share of lifestyle-related borrowing at 40 percent.

Life events remain a significant driver of credit demand, with 11 percent of borrowers financing weddings and celebrations. Tier 1 cities led this trend, with 14 percent of borrowers using personal loans for such occasions.

Despite the rise of digital lending, offline channels continue to dominate, with only 32 percent of borrowers availing personal loans online.

Impulse borrowing is becoming mainstream, with 25 percent of borrowers skipping evaluation of other credit alternatives, a behaviour most pronounced among Gen Z at 31 percent.

“Borrowing decisions today are shaped as much by life events, aspirations and urgency as by interest rates or eligibility,” Commenting on the findings, Paisabazaar CEO Santosh Agarwal said.

The study also pointed to strong post-purchase satisfaction, with 91 percent of borrowers rating their experience as "good" or "very good". Speed emerged as the single biggest driver of satisfaction across both offline (58 percent) and online (57 percent) channels, followed by simplified processes and reduced paperwork.

The report also flagged gaps in credit understanding. While 98 percent of borrowers were aware of credit scores, only 7 percent fully understood how credit scores impact loan approval and pricing, indicating the need for deeper financial literacy initiatives.