How India borrows: Loans to buy smartphones, business loans surge to new highs, home loan sees marginal growth

Loan trends: There has been a noticeable change in borrowing trends within the lower-middle-class demographic in India, moving away from necessity-based borrowing towards a focus on aspirations, entrepreneurship, and strategic long-term investments, the recent survey by Home Credit India, the local arm of global consumer finance provider Home Credit, stated.

The survey found that the majority of loans were used for purchasing consumer durables, with borrowing for business ventures and home improvements following closely behind. Specifically, the percentage of loans taken out for smartphones and household appliances surged from 1% in 2020 to 37% in 2024, demonstrating a consistent uptrend in borrowing for acquiring modern technology and consumer goods. 

Furthermore, loans for business expansion and start-ups saw a significant increase from 5% in 2020 to 21% in 2024, fueling a sustained entrepreneurial spirit as individuals sought to explore new revenue streams and opportunities amid economic changes stemming from the pandemic. This trend was further bolstered by robust government support for micro, small, and medium enterprises (MSMEs) in the form of credit facilities and subsidies. 

During the years of 2022 to 2024, there was a slight increase in borrowing for home renovation and construction, rising from 9% to 15%. This suggests a growing interest among consumers in enhancing living conditions, increasing home value, and making long-term investments in assets, fueled by a positive economic outlook.

Over the same period, borrowing for weddings saw a gradual increase from 3% in 2021 to 5% in 2024, indicating the continued cultural importance placed on fulfilling social obligations.

The research revealed consistent patterns in the realm of education loans, maintaining a steady rate of 4% from 2022 to 2024, emphasizing the ongoing significance of investing in children's education.

Notably, borrowing for medical emergencies has decreased significantly, dropping from 7% in 2020 to 3% in 2024. This decline may be attributed to enhanced financial planning, more accessible healthcare options, and improved insurance coverage.

Digital Financial Transactions

The research findings suggest that as consumers become more adept at using technology, there is a notable shift in their borrowing habits towards app-based banking. In 2024, 65% of consumers prefer app-based banking, while 44% opt for browser-based banking. This shift reflects consumers' increasing desire for convenience, 24/7 financial access, and their growing digital literacy. 

Millennials are the most avid users of app-based banking (69%), followed by Gen Z (65%) and Gen X (58%). From a geographical perspective, Metro areas lead in app-based banking adoption at 71%, with Tier 2 cities following closely at 69%. In comparison, browser-based banking is more popular among Gen Z and Millennials, with a usage rate of 47% each, while Gen X shows the lowest usage at 35%.

Online shopping

Online shopping has also shown a pattern of normalisation following the peak disruptions caused by the COVID-19 pandemic. In 2021, usage of online shopping hit 69% due to health and safety concerns but dropped to 48% in 2023 as restrictions eased. By 2024, it has slightly rebounded to 53%. Women (60%), Millennials (59%), Gen Z (58%), Metros and Tier 2 cities (56% each) now drive this trend. Kolkata (71%), Kochi (66%), Hyderabad (64%), Chennai (60%), and Ranchi (59%)are the top five cities in terms of online shoppers.

Embedded Finance and EMI Cards 

The growing popularity of innovative financial solutions, such as embedded finance and EMI cards, is driven by their convenience in credit-related transactions. A significant shift in customer attitudes towards embedded finance is evident, with 43% of customers showing interest in these services. Nearly half of the borrowers who support embedded finance believe that it streamlines the borrowing process and simplifies e-commerce shopping. Among them, 64% prefer major e-commerce platforms like Amazon, Flipkart, Meesho, 21% choose travel apps such as MakeMyTrip and ClearTrip, and 23% opt for food delivery apps like Zomato and Swiggy.

Based on the study findings, interest in embedded finance is significantly higher among Gen Z individuals (55%) and male participants (45%), indicating a notable demographic divide in engagement. Furthermore, customers residing in Tier 1 cities, especially in urban areas like Lucknow (68%), Patna (53%), Ahmedabad (52%), Bhopal (52%), and Ranchi (52%), demonstrated a greater inclination towards embedded finance.

EMI Cards emerged as the top choice for credit among lower-middle-class borrowers in India, with 43% citing them as their preferred option due to the higher level of trust and faster disbursals. Credit cards were the favoured choice for 24% of borrowers, followed by digital lending apps at 12%.