Small Personal Loans Overtake Credit Cards in India's Lending Market
Source: ET Banking
A new report from TransUnion CIBIL reveals that Indian consumers are shifting away from credit cards in favor of small-ticket personal loans. This trend highlights a significant change in how retail borrowers access unsecured credit for their consumption needs.
- ▸Indian consumers are increasingly choosing small personal loans over traditional credit cards.
- ▸Small-ticket loans are popular due to instant digital processing and fixed EMI structures.
- ▸The shift is driven by consumption-linked credit needs and e-commerce integration.
- ▸Borrowers must be careful as multiple small loans can impact their CIBIL score if not managed well.
- ✓Indian consumers are increasingly choosing small personal loans over traditional credit cards.
- ✓Small-ticket loans are popular due to instant digital processing and fixed EMI structures.
- ✓The shift is driven by consumption-linked credit needs and e-commerce integration.
- ✓Borrowers must be careful as multiple small loans can impact their CIBIL score if not managed well.
The landscape of unsecured lending in India is undergoing a major shift. According to the latest data from TransUnion CIBIL, credit cards—once the primary tool for short-term credit—are losing their dominant market share. In their place, small-ticket personal loans and other consumption-linked credit products are becoming the preferred choice for Indian borrowers.
The Rise of Small-Ticket Loans
Small-ticket personal loans, often defined as loans under ₹50,000, have seen a massive surge in popularity. These loans are frequently used for immediate consumption needs, such as purchasing electronics, funding travel, or managing emergency expenses. Unlike credit cards, which require an application process and a physical or digital card, these loans are often integrated directly into checkout processes on e-commerce platforms.
Why Borrowers are Switching
Several factors are driving this transition in the Indian market:
- Ease of Access: Digital lending platforms and NBFCs offer instant approvals with minimal documentation compared to traditional credit card applications.
- Fixed Repayment Schedules: Unlike credit card debt, which can snowball due to minimum payment traps, personal loans offer a clear EMI structure with a fixed end date.
- Targeted Credit: Many consumers prefer taking a specific loan for a specific purchase rather than maintaining a revolving credit line.
Impact on the Banking Sector
This trend indicates a maturing credit market where consumers are becoming more selective about the type of debt they carry. While credit cards remain essential for high-spenders and those seeking rewards, the mass market is increasingly leaning toward structured personal loans. Financial institutions are now pivoting their strategies to offer more 'Buy Now, Pay Later' (BNPL) options and quick-disbursal personal loans to capture this growing segment.
A Word of Caution for Borrowers
While small-ticket loans are convenient, credit experts warn against 'credit stacking'—the habit of taking multiple small loans simultaneously. Since these are unsecured debts, they often carry higher interest rates than secured loans. Furthermore, every application and repayment behavior is tracked by bureaus like CIBIL, meaning defaults on even a small ₹5,000 loan can significantly damage a borrower's long-term credit score.
This article is for informational purposes only and does not constitute financial advice. Please consult a professional before taking any credit products.
Interest rates, fees and eligibility for banking products are set by the respective banks and change frequently — verify the current terms with the provider before applying. Some listings may be sponsored. Not financial advice.
Frequently Asked Questions
Why are personal loans becoming more popular than credit cards?
Personal loans offer fixed repayment schedules and instant digital approvals, making them more predictable and accessible for specific purchases compared to revolving credit card debt.
What counts as a 'small-ticket' personal loan?
In the Indian context, these are typically unsecured loans with a ticket size of less than ₹50,000, often used for immediate consumption.
Will taking a small personal loan affect my CIBIL score?
Yes, every loan is reported to credit bureaus. Timely repayments will improve your score, while defaults or multiple frequent applications can lower it.
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