Home, auto, personal loans in India: 2025 review and what 2026 holds

India’s consumer lending sector demonstrated resilient growth in 2025, supported by falling interest rates, policy support, and changing borrower behaviour, according to industry experts. The year saw steady expansion across home, personal, and auto loans, alongside selective growth in rural and microfinance segments, as lenders balanced credit demand with risk management.

Retail credit growth and borrower trends

Retail credit rose 17% year-on-year to an outstanding balance of ₹144 lakh crore as of September 2025, serving nearly 29.8 crore borrowers, noted Kunal Shah, Co-founder of SURE. Housing loans, which accounted for 29% of outstanding retail credit at ₹41 lakh crore, grew 12% YoY, with approximately ₹5.5 lakh crore in new disbursements.

The average ticket size stood at ₹32 lakh, with PSU banks’ share in new home loan disbursements rising to 47% from 42% the previous year.

Personal loans grew 9% YoY to ₹15 lakh crore, supported by ₹5.3 lakh crore in new disbursements, while auto loans expanded 15% YoY to ₹9.5 lakh crore, with ₹2 lakh crore in fresh lending.

Across segments, borrowers displayed more disciplined financial behaviour, including shorter tenures and careful alignment of loan amounts with income growth, helping keep delinquencies stable, Shah added.

Girish Kousgi, MD and CEO of IIFL Home Finance, highlighted the resilience of the affordable housing segment, especially in Tier-2 and Tier-3 cities.

“These are genuine end-users, families moving out of rental housing, and many first-time buyers now eligible under PMAY 2.0. Overall, the segment showed strong asset quality through the year,” he said.

In rural and micro-enterprise lending, Deepak Aggarwal, Co-Founder and Co-CEO of Moneyboxx Finance, noted robust demand for small business loans and agri-linked credit. However, repayment behaviour showed volatility in certain pockets, prompting lenders to tighten cash-flow assessments and focus on secured or income-backed segments.

Impact of interest rates and regulatory actions

Interest-rate cuts in 2025—cumulative reductions of 125 basis points by the RBI—improved affordability across secured loans, particularly housing finance.

Shah noted that lending rates on fresh loans fell by 0.73%, while outstanding loans saw a 0.61% reduction. Regulatory steps, including CRR relaxations and pre-payment charge guidelines, also supported borrowers by improving liquidity and enabling cost-free switching of loans.

Yashoraj Tyagi, CEO of CASHe, pointed out that rate cuts enabled home loans below 8%, materially reducing EMIs.

Rajiv Sabharwal, MD & CEO of Tata Capital, added, “Rate cuts, along with GST rationalisation and liquidity initiatives, have laid a strong foundation for retail credit expansion. Borrowers have responded with more intentional borrowing rather than indiscriminate credit uptake.”

For NBFCs and MFIs, Aggarwal said that while systemic funding costs eased, partial transmission meant rural and micro-enterprise borrowers saw only marginal relief. Regulatory measures, including updated capital norms and digital lending guidelines, strengthened underwriting discipline and improved portfolio resilience.

Trends in digital lending and embedded finance

Digital platforms and embedded finance emerged as key drivers of growth in 2025.

Rishabh Goel, Co-founder & CEO of Credgenics, observed that credit moved closer to the point of need, embedded within property platforms, auto ecosystems, payroll systems, and commerce apps. This shift enabled faster, data-driven underwriting and reduced friction, supporting better risk outcomes and conversion quality.

Outlook for 2026

Experts expect continued retail credit growth in 2026, driven by rising incomes, evolving lifestyles, and structural demand in housing, mobility, and higher-ticket personal loans.

Shah noted that RBI’s pre-payment charge guidelines will increase transparency and allow borrowers to refinance more cost-effectively.

Aggarwal expects cautious but improving demand in rural and micro-enterprise lending, with gradual moderation in delinquencies supported by better bureau usage and household-level exposure analysis.

Goel added that lending will be quality-focused, with sharper segmentation and disciplined pricing, particularly in unsecured credit.

For affordable housing, Kousgi said, “Digital platforms will streamline application processes, assess creditworthiness, and smoothen the customer journey. Borrowers should make informed decisions regarding housing requirements, while lenders focus on expanding responsible credit access and maintaining portfolio discipline.”

Guidance for borrowers

Experts advise borrowers to prioritise financial stability over opportunistic borrowing in 2026.

Shah and Sabharwal recommend floating-rate loans, monitoring overall borrowing costs, and leveraging refinancing opportunities where feasible.

Aggarwal cautioned rural and micro-enterprise borrowers to avoid stacking multiple small loans and to align credit uptake with reliable cash flows.

Tyagi suggested that borrowers should clean up balance sheets, close high-cost loans, maintain low credit utilisation, and safeguard credit scores to optimise future access and pricing.