50% of first-time borrowers take loans after income rise:41% of non-borrowers report higher earnings, only half of those increased their expenditure

A 10-year study covering more than 1.5 lakh households across India has challenged the common belief that people borrow only during financial distress. The research found that half of all first-time borrowers took loans after their incomes had increased, suggesting that borrowing is increasingly driven by aspirations and future financial planning rather than necessity alone. The study was conducted by researchers Geetika Palta, Suzain Thomas and Renuka Sane. Data from the Covid-19 period (2020-21) was excluded from the analysis. Higher income encourages bigger financial decisions According to the study, 50% of first-time borrowers had seen their income rise in the previous year, and 60% of them also increased their spending. In comparison, only 41% of households that had never taken a loan reported higher incomes, and only half of those increased their expenditure. Researchers said rising incomes make families more confident about future earnings, prompting them to plan major expenses such as buying a house or vehicle, funding children’s education, starting a business or making other large investments. Instead of waiting to accumulate savings, many now prefer to finance these expenses through loans. Suzain Thomas said borrowing is not merely a response to financial hardship but can also reflect confidence in future income. Who is more likely to take a first loan? The study found that first-time borrowers generally shared these characteristics: Loan repayments increase household expenditure The research found that while total household spending rises after taking a loan, a significant portion goes towards loan repayments rather than day-to-day consumption. It also observed that fluctuations in household spending initially decline after borrowing. However, within one to two years, total expenditure becomes 26% higher than that of households that never borrowed. The study also noted that urban households and families owning mobile phones were more likely to take a first loan, indicating expanding access to digital lending. Education, savings linked to borrowing behaviour The study found that households with lower education levels and weaker savings are more likely to become first-time borrowers.