Personal Loan Market Trends

Personal Loan Market Drivers

Digital Lending Platforms and Fintech Collaborations

• The rise of digital lending platforms and fintech partnerships has reshaped the personal loan industry. In 2024, fintech NBFCs contributed 76% of loan sanction volume globally, though only 12% by value—highlighting a focus on small-ticket lending. Firms like L&T Finance and SMFG India Credit collaborated with platforms like CRED and Paytm, expanding access. This shift has improved loan processing efficiency, broadened financial inclusion, and aligned with growing digital preferences of younger, tech-savvy borrowers across global markets.

Global Surge in Consumer Debt and Demand for Credit Access

• As of Q1 2024, U.S. consumer debt hit USD 5.08 trillion, reflecting a global rise in credit dependence. Non-revolving debt stood at USD 3.73 trillion, while revolving debt reached USD 1.34 trillion. This trend highlights growing reliance on personal loans to manage expenses. The rise of fintech platforms has improved access to credit worldwide. TransUnion reported USD 192 billion in personal loan balances in Q2 2022—a 31% annual increase—underscoring the growing significance of personal loans in modern financial systems.

Personal Loan Market Restraint

Rising Delinquencies in Unsecured Personal Loans

• The surge in unsecured personal loans has led to increased default rates, posing a significant challenge for lenders. In 2023, the Reserve Bank of India (RBI) reported that unsecured loans grew by approximately 23%, outpacing the overall bank credit growth of about 15%. In the United States, the delinquency rate on consumer loans was 2.7% in Q4 2020, indicating a notable level of risk in the sector. Similarly, Canada's personal loan default rate stood at 1.67% in 2020, while Japan reported a 1.76% delinquency rate on credit cards in the same year. These figures reflect a broader trend of rising delinquencies in unsecured lending across various developed economies. The increase in defaults has led to higher provisioning requirements for banks, thereby affecting their profitability and lending capacity.​

Regulatory Tightening and Increased Capital Requirements

• To address escalating risks in unsecured lending, global regulators have adopted tighter controls. The Basel III framework, formulated by the Basel Committee, sets global standards for capital adequacy, stress testing, and liquidity. Its latest iteration, Basel 3.1 or the Basel III Endgame, will roll out from July 1, 2025, over three years. These measures aim to boost financial stability but have sparked opposition, especially in the U.S., due to concerns about higher reserve requirements restricting lending and hampering personal loan market growth.