For years, personal loans were the go-to option for instant cash — from weddings to travel to debt consolidation, approvals came in hours with minimal paperwork. But in 2025, this “easy credit” culture is slowly fading. Banks and NBFCs are tightening lending norms, and borrowers are finding it harder to get approvals, even with good credit scores.
What’s causing this sudden shift in the lending landscape? Let’s break it down.
Rising Defaults & Delinquencies
The first red flag came in late 2024, when multiple reports indicated a spike in personal loan defaults, especially among young urban borrowers. Many took short-term credit for lifestyle expenses, only to struggle with repayments as inflation and EMIs rose.
According to banking data, unsecured lending (like personal loans and credit cards) grew over 25% year-on-year — a pace that worried both banks and the Reserve Bank of India (RBI).
To curb potential risks, the RBI issued advisories and capital requirement hikes, pushing lenders to become more selective.
RBI’s Tightening Grip
In recent months, the RBI has emphasized “responsible lending” — urging banks and NBFCs to assess borrower income stability, debt-to-income ratio, and repayment behavior more stringently.
The central bank’s message is clear:
“Fast credit growth must not come at the cost of financial stability.”
As a result, lenders are now:
Increasing minimum credit score requirements.
Reducing pre-approved loan offers.
Demanding stronger income proof for salaried and self-employed individuals.
Using AI-driven data to identify risky profiles.
Shift Toward Secured Lending
With unsecured loan risk rising, banks are shifting focus toward secured products — home loans, gold loans, and auto loans. These are backed by collateral, making them safer for lenders.
NBFCs, too, are moving from quick personal loans to products like loan against property or secured business loans, where default losses are minimal.
This change indicates a return to fundamentals — where creditworthiness and collateral matter more than speed.
What Borrowers Should Expect in 2025
Borrowers may now face:
Lower loan amounts than requested.
Higher interest rates for new applicants.
Longer approval times as verification intensifies.
Reduced top-up offers from banks and fintech apps.
Those with multiple ongoing EMIs could be flagged as high-risk, even if payments are on time.
Tips to Secure a Personal Loan in the New Era
Maintain a strong credit score (750+).
Keep your debt-to-income ratio below 40%.
Avoid multiple loan applications within a short period.
Show stable income through payslips or bank statements.
Opt for longer tenures to reduce EMI load if cash flow is tight.
Borrowers who demonstrate discipline and repayment capacity will still get approvals — but not at the easy pace seen in 2023–24.
The Bigger Picture
The tightening of personal loan norms doesn’t mean banks are anti-lending — it means they’re becoming smarter lenders. The focus is on quality over quantity, ensuring India’s retail credit growth remains sustainable.
The “easy credit” era may be ending, but a more responsible credit culture is beginning — one where both banks and borrowers learn to balance ambition with caution.
FAQs
Q1: Why are banks stricter about personal loans now?
Due to rising defaults and RBI’s caution on unsecured lending, banks have increased scrutiny on personal loan approvals.
Q2: Will interest rates rise in 2025?
Yes, some lenders have raised personal loan rates slightly to balance higher risk exposure.
Q3: Can I still get a personal loan with a low credit score?
It’s difficult — but you may qualify through co-applicants, salary-based offers, or secured loan alternatives.
Q4: Which type of loan is easier to get now?
Secured loans like gold loans or home loans are easier due to lower default risks.
Q5: What should I do before applying for a loan?
Check your credit report, clear old dues, and ensure you meet the lender’s income and EMI affordability criteria.
Published on : 31st October
Published by : SMITA
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