Credit Cards Lose Ground as Indians Prefer Personal Loans: What the Changing Borrowing Trend Means

India’s consumer lending landscape is undergoing a significant transformation. For years, credit cards were the preferred source of unsecured credit for millions of urban consumers looking to finance purchases, manage emergencies, or enjoy reward programs. However, recent findings from a TransUnion CIBIL report indicate that this long-standing trend is changing. More Indians are now choosing personal loans, particularly small-ticket loans, instead of relying on credit cards.

The shift reflects evolving consumer preferences, rapid growth in digital lending platforms, and changing borrowing behaviour. While credit cards continue to remain relevant, their dominance in the unsecured lending market is gradually declining as borrowers seek more structured repayment options.

A New Era of Consumer Borrowing

India’s financial ecosystem has changed dramatically over the last decade. Digital banking, fintech companies, instant loan approvals, and smartphone-based financial services have made borrowing easier than ever before.

Consumers no longer need to wait for lengthy paperwork or visit bank branches. Today, they can apply for a personal loan online and receive approval within minutes. This convenience has encouraged many borrowers to choose personal loans over traditional revolving credit offered by credit cards.

According to the report, small personal loans, especially those below ₹50,000, are witnessing rapid growth across the country.

Why Personal Loans Are Becoming More Popular

One of the primary reasons behind this shift is predictability.

Unlike credit cards, where unpaid balances attract high interest rates that continue to compound, personal loans come with fixed monthly instalments (EMIs). Borrowers know exactly how much they need to repay every month and when the loan will end.

This provides better financial planning and reduces the chances of accumulating expensive debt.

Other reasons include:

• Instant digital loan approvals
• Minimal documentation
• Flexible loan amounts
• Fixed repayment schedules
• Increasing availability through fintech platforms

For many borrowers, especially first-time salaried professionals and young consumers, these features make personal loans more attractive than credit cards.

The Rise of Fintech Lending

Fintech companies have emerged as one of the biggest drivers of this trend.

Technology-based lenders have simplified the borrowing process by using digital verification, AI-based credit assessment, and paperless applications. Consumers can complete the entire borrowing journey through a mobile application without visiting a bank.

Many fintech companies specialise in offering small personal loans that meet short-term financial needs, including:

• Medical emergencies
• Education expenses
• Travel
• Home appliances
• Wedding expenses
• Small business requirements

The ease of access has expanded credit availability beyond metro cities into Tier-2 and Tier-3 towns.

Why Credit Cards Are Losing Their Appeal

Credit cards still offer several benefits, including cashback, travel rewards, airport lounge access, and interest-free periods. However, they also carry certain risks.

If the outstanding balance is not paid in full before the due date, interest charges can become extremely high. Over time, unpaid balances may grow significantly, making repayment difficult.

Many borrowers now prefer avoiding revolving debt and instead opt for structured loans with fixed repayment periods.

Additionally, some consumers feel more comfortable borrowing a defined amount that automatically reduces every month rather than managing continuously available credit limits.

Existing Borrowers Are Driving Growth

Another interesting observation from the report is that India’s retail credit growth is increasingly being driven by existing borrowers rather than first-time borrowers.

Individuals who already possess a credit history are taking additional personal loans to finance various needs.

This suggests increasing confidence among lenders in extending credit to customers with proven repayment records.

For borrowers, maintaining a healthy credit score continues to play an important role in securing quick approvals and favourable interest rates.

Banks Are Becoming More Selective

Although lending continues to grow, banks and financial institutions are exercising greater caution.

Following concerns over unsecured lending during recent years, lenders have strengthened their credit assessment processes. They are paying closer attention to applicants’ repayment capacity, income stability, existing liabilities, and credit history.

This balanced approach aims to maintain healthy loan portfolios while reducing the risk of defaults.

Improved underwriting standards also contribute to better overall asset quality for lenders.

What This Means for Consumers

The changing borrowing trend offers both opportunities and responsibilities.

Consumers now have more borrowing choices than ever before. Whether they require funds for education, healthcare, home improvement, or emergencies, obtaining a small personal loan has become faster and more convenient.

However, responsible borrowing remains essential.

Before taking any loan, borrowers should carefully evaluate:

• Monthly repayment capacity
• Interest rates
• Processing fees
• Loan tenure
• Total repayment amount

Borrowing should always serve a genuine financial need rather than supporting unnecessary spending.

Credit Cards Still Have an Important Role

Despite losing some market share, credit cards are unlikely to disappear.

They continue to offer several advantages that personal loans cannot replace.

Credit cards remain ideal for:

• Everyday purchases
• Travel bookings
• Online shopping
• Emergency expenses
• Building credit history
• Reward points and cashback

When used responsibly and paid in full every month, credit cards remain one of the most useful financial products available.

The current trend does not indicate the end of credit cards but rather a diversification of borrowing preferences.

The Road Ahead

India’s retail lending market is expected to continue expanding as financial inclusion improves and digital technology reaches more consumers.

Personal loans, Buy Now Pay Later (BNPL) products, digital credit lines, and embedded finance solutions are likely to coexist alongside traditional credit cards.

Banks and fintech companies will continue competing by offering faster approvals, better customer experiences, competitive interest rates, and personalised financial products.

As artificial intelligence and digital data become increasingly integrated into lending decisions, borrowers with strong financial discipline and healthy credit profiles are likely to enjoy greater access to affordable credit.

Conclusion

The latest retail lending trends indicate that India’s borrowing habits are evolving rather than declining. Consumers are increasingly choosing personal loans because they provide certainty, fixed repayments, and easier digital access. Meanwhile, credit cards continue to serve an important role for daily spending and rewards but no longer dominate unsecured borrowing as they once did.

For lenders, this represents an opportunity to innovate and expand digital lending services. For borrowers, it reinforces the importance of maintaining a good credit score, comparing financial products carefully, and borrowing responsibly.

As India’s financial ecosystem continues to mature, the balance between convenience, affordability, and responsible lending will shape the future of consumer credit. The growing preference for structured personal loans reflects a broader shift towards more disciplined financial management and smarter borrowing decisions.