Illness top loan trigger: Health emergencies are fuelling personal loans

Second-largest borrowing trigger: 14% in Tier 1 vs. 8% in Tier 3

Medical emergencies are among the biggest reasons for taking a personal loan in urban India, revealed a consumer research report by Paisabazaar. 

 

 According to “The Personal Loan Story” released by Paisabazaar, 11% borrowers in India took a personal loan to meet emergency healthcare and medical expenses, with the share rising to 14% in Tier 1. The same stood at 10% in Tier 2 and 8% in Tier 3. The insight clearly points to low health insurance penetration and rising medical costs leading to dependence on personal loans during medical emergencies. 

Top Drivers of Personal Loan Usage 

6%), personal loans are a conscious borrowing choice rather than merely a response to need and supporting milestones

 

The report is based on in-depth interviews with 2889 personal loan borrowers across 23 cities and towns, offering insights into key borrowing triggers, preferences, decision drivers, and awareness levels across regions, city tiers, and age groups in India. 

The medical inflation rate of India is between 12-15% per year and is one of the highest in Asia , creating a growing gap between cost and cover. In smaller cities, while treatment costs may be lower, constraints around healthcare facilities, insurance coverage, and household savings create a distinct set of vulnerabilities.

 

Two factors are converging to push borrowers toward credit rather than risk-mitigating tools like insurance:

 

Low insurance penetration: Despite growth in recent years, health insurance coverage in India remains limited to about 40–42% of the population. This means large swathes of households still pay health bills out-of-pocket.

 

High out-of-pocket costs: Even among those with coverage, many plans leave gaps — whether in the form of co-pays, sub-limits, or missing coverage of specific tests and procedures. Nearly four out of every ten rupees spent on healthcare came directly from patients’ pockets in recent national health accounts data, adding financial stress when emergencies strike.

 

Against this backdrop, personal loans become the default financial bridge — fast, unsecured, and available digitally — even though they carry interest and repayment obligations.

 

One reason medical emergencies translate quickly into personal loan demand is speed. Personal loans are unsecured, require relatively less documentation, and can be disbursed quickly — sometimes within 24–48 hours — if eligibility conditions are met.

 

Typical features include:

 

No collateral required

Loan amounts up to ₹40 lakh

Repayment tenures up to five years

Online application and digital processing

Interest rates (in many cases) starting below 10% for qualifying borrowers

 

For many families facing sudden hospital bills or urgent medical procedures, this immediacy outweighs the higher cost of borrowing, especially when savings are insufficient or health plans fall short.

   

Along with medical needs, borrowers cited essential day-to-day essential expenses, urgent home repairs, and wedding or celebratory events as the most common reasons for availing personal loans.

 

Borrowing Patterns Across Regions and City Tiers 

. At a regional level, borrowing to meet essential living expenses is most pronounced in the South (15%), indicating higher reliance on personal loans for day-to-day survival.

 

Borrowing is no longer driven only by need. 48% took personal loans for essential requirements, while 36% borrowed to fund aspirations and 16% for business investments.

 

Tier 3 borrowers are 2.4x more likely to borrow for daily needs than Tier 1 borrowers.

 

Apart from self-employed borrowing for business investments, salaried individuals (9%) are also leveraging personal loans to fund family/side businesses or passion projects.

 

Middle-income India is the most credit-active for aspirational led borrowing. Borrowers earning between Rs. 7.5 to 10 lakhs annually show the highest lifestyle borrowing at 40%.

 

Credit is being used for life events, with 11% of borrowers financing weddings and celebrations, led by Tier 1 cities at 14%.

 

Despite the growth of online loans, many still rely on offline channels for borrowing. Only 32% availed personal loans online

 

Impulse borrowing is becoming mainstream, with 25% of borrowers skipping evaluation of other credit alternatives, a behaviour most pronounced among Gen Z at 31%.  Only one in three borrowers (32%) availed personal loans online, with NBFC and fintech websites/apps accounting for the largest share (15%), followed by existing banks’ websites/apps (8%) and other banks’ websites/apps (5%). 4% borrowers used other platforms that include aggregator and comparison website/apps, payments apps and others to take a personal loan, among which Paisabazaar (29%) was the top platform. A significant 68% still prefer visiting physical branches to avail credit, signalling inertia toward online channels among large pockets of the population.

 

 “Borrowing decisions today are shaped as much by life events, aspirations and urgency as by interest rates or eligibility. This study is our effort to move beyond transactional data and better understand the motivation and behaviour behind borrower decisions. As consumer behaviour evolves rapidly, it is becoming increasingly important for the ecosystem to understand these shifts and enable responsible, transparent and inclusive credit delivery," said Santosh Agarwal, CEO, Paisabazaar. 

 

While essentials continue to account for the bulk of borrowing among salaried individuals, aspiration-led usage is not insignificant. Nearly 40% of salaried borrowers report using personal loans for lifestyle or aspirational expenses, typically when larger outlays cannot be comfortably managed within monthly income or existing savings.

 

Among non-salaried individuals, borrowing is largely balanced across use cases, with actual needs taking the lead. Roughly four in ten respondents (38%) take personal loans to address immediate necessities, while a comparable share is directed toward aspirations and business investments (31% each). Together, these patterns indicate that credit in this segment supports day-to-day stability alongside both lifestyle progression and income-linked goals.

 

When the lens shifts to income levels, a more concentrated pattern emerges. Borrowers earning between ₹7.5–10 lakh annually stand out as the most credit-active for lifestyle aspirations, with 40% borrowing to fund goals such as home renovations, vehicle upgrades, or celebrations.

 

Nearly one-sixth of the respondents in Tier 3 (16%) said that they used personal loans to cover essential living costs, more than double the share in Tier 1 cities (7%) 

The study also revealed that post-purchase experience was rated “good” or “very good” by a remarkable 91% of borrowers. Speed was the single strongest driver of satisfaction across both offline (58%) and online channels (57%), followed by simplified processes and less paperwork, reinforcing the premium consumers place on efficiency over form.

 

In terms of credit understanding, the report also shed light on how Indians, though majorly credit aware, are yet to grasp the full depth and breadth of credit intricacies. 98% knew what a credit score is, but only a mere 7% fully understood how it affected their loan approval and pricing.