India’s lower-middle class is moving from borrowing for survival toward borrowing for advancement, signalling a decisive cultural shift in credit behaviour, according to the seventh edition of Home Credit India’s annual How India Borrows (HIB) study.
Representing nearly two-thirds of the population, this segment is increasingly using credit to improve living standards, invest in entrepreneurial ventures, and build long-term financial security. The study identifies a growing cohort of strategic borrowers who view credit as an enabler of upward mobility rather than a last-resort safety net.
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The 2025 report is anchored around four themes: credit as a driver of aspiration, the rise of digital lending, evolving borrower decision-making, and the emergence of embedded finance. Together, they show how “smart credit” is reshaping financial behaviour across age groups, genders, and regions.
Consumer durable purchases, including smartphones and home appliances, remain the top reason for borrowing at 46 per cent, underscoring their importance in digital connectivity and everyday convenience. Notably, loans for business expansion or start-ups rose to 25 per cent, up from 21 per cent in 2024, suggesting a rise in entrepreneurial intent.
Other categories, such as home renovation (12 per cent), education (4 per cent), and vehicle purchases (4 per cent) show stable or moderate demand, while non-essential borrowing, including travel and lifestyle upgrades, remains limited, reflecting a pragmatic financial mindset.
Digital literacy and mobile-first adoption are accelerating financial empowerment. The study finds that 65 per cent of borrowers now use mobile banking, led by metros (71 per cent ) and the South (68 per cent ). Further, 57 per cent shop online, with women (66 per cent) outpacing men (55 per cent).
The report says 46 per cent use internet banking, with Chennai (59per cent) and Delhi NCR (53 per cent) emerging as digital trust centres.
Gen Z and Millennials dominate digital finance usage, while the East, particularly Kolkata and Patna, continues to show the strongest appetite for financial learning and digital engagement.
Despite rising adoption, only 23 per cent fully understand data privacy norms, highlighting a critical awareness gap.
Modern borrowers are becoming more careful evaluators of affordability, transparency, and lender reputation.
The report said 46 per cent assess EMI feasibility before taking a loan, 31per cent review credit scores, while 66per cent prefer credible lenders even if it means higher EMIs.
Regional trends add nuance: borrowers in the North, West and East emphasise EMI viability, while the South prioritises credit scores and service quality. Cities such as Bhopal, Kolkata, and Patna show the highest EMI awareness.
Online lending has overtaken traditional POS and bank channels, with 51per cent now preferring to borrow digitally, a 10-point jump from last year. Tier 1 cities are leading the adoption curve, followed by strong pockets in the North and West.
Pune, Ludhiana, Chandigarh, and Bengaluru rank among the highest in digital loan usage, while Mumbai and Lucknow remain more conservative in their borrowing approach.
The report also highlighted the embedded finance habit, saying the credit built directly into digital ecosystems is becoming a mainstream preference, especially among younger consumers.
It said 49 per cent show interest in embedded finance solutions. Gen Z (58 per cent) and women (51 per cent) are the most enthusiastic adopters.
EMI cards remain the most widely used financing tool, preferred by 65per cent of borrowers.
South India leads the embedded finance surge, with Chennai, Bengaluru and Hyderabad emerging as top adopters.
Business expansion (34 per cent) and home buying (28 per cent ) remain the top future borrowing goals, reflecting India’s dual drive for entrepreneurship and home ownership.
Gen Z stands out as the most ambitious cohort, with the highest intent for both home buying and business creation. East India continues to lead entrepreneurial aspirations, while metros dominate home-buying intent.
More than half of consumers (51 per cent) say credit has enabled them to achieve goals they otherwise couldn’t have pursued.
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