Fintech Personal Loan Defaults Hit 6-Quarter High, Driven by Young Borrowers and Small Towns

India’s fast-growing fin-tech personal loan segment is showing signs of rising stress, with defaults touching the highest level in a year and a half. According to the latest report from the Fin-tech Association for Consumer Empowerment (FACE), the proportion of personal loans overdue by more than 90 days rose to 3.6% as of March 2025—the highest figure recorded in the past six quarters. The deterioration in portfolio quality is especially visible in smaller towns and rural regions, where economic resilience remains weak.

The report shows that loans disbursed in tier-3 cities and beyond contributed most to the rise in delinquency, with a 90+ day default rate of 4.2%. Rural areas were close behind at 4.1%, while semi-urban locations reported a delinquency rate of 3.8%. These numbers suggest that borrowers in non-metro areas are increasingly struggling to repay digital loans, possibly due to weaker income flows and limited financial buffers.

Demographically, younger borrowers are emerging as the most stressed category. Borrowers aged below 25 accounted for a sharp 6.1% of delinquent loans—far higher than other age brackets. Those in the 26–35 age group, who represent a large share of fin-tech lending volumes, contributed to a 3.6% delinquency rate. These two segments together account for nearly two-thirds of all sanctioned fin-tech loans, highlighting a growing repayment challenge among the very audience the sector aggressively targets.

Delinquencies are also higher among borrowers with shorter credit histories. The FACE report notes that those with a credit bureau vintage of less than one year had a 5.3% default rate, while borrowers with one–two years of history showed the highest stress at 6.5%. In comparison, borrowers with over five years of credit history showed a significantly lower delinquency rate of 2.9%. This indicates that newer borrowers, many of whom are first-time users of formal credit, are at greater risk of repayment failure.

Fin-tech non-banking financial companies (NBFCs) have seen phenomenal growth in recent years by extending small-ticket loans via digital platforms to underserved consumers. In FY24–25, fin-tech NBFCs accounted for 74% of the volume of personal loan sanctions, though only 12% in value terms. The average ticket size of such loans remains below Rs10,000, catering primarily to lower-income groups and younger populations.

However, the same features that allowed rapid market penetration are now contributing to stress—small loans given to inexperienced borrowers with limited repayment capacity and thin credit histories, FACE says.

According to the report, the total value of fin-tech personal loans outstanding stood at Rs73,311 crore at the end of March 2025, covering 45.9mn (million) active loans. “While this marks a 0.7% increase in value compared to the previous year, quarterly disbursals in the fourth quarter (Q4) of FY24-25 fell by 4% year-on-year, indicating a possible moderation in lending activity. States like Uttar Pradesh, Andhra Pradesh, and Telangana showed among the highest delinquency rates, exceeding 4%, while Maharashtra and Delhi fared better at 3.1% and 3.3%, respectively.”

With the rise in overdue loans, concerns are growing around the sustainability of the fin-tech lending model in its current form. FACE, the Reserve Bank of India (RBI)-recognised self-regulatory body for digital lenders, has urged industry players to tighten underwriting standards and prioritise responsible lending. While the sector plays a critical role in advancing financial inclusion, especially for young and underserved borrowers, the report underscores the importance of managing risk prudently to avoid long-term damage.

As economic conditions remain uncertain and digital credit continues to expand into less formal parts of the economy, the rising trend in defaults serves as a cautionary signal. Without stronger safeguards and better borrower education, fin-tech lenders risk seeing their rapid growth reverse under the weight of rising delinquencies.