Buy now, pay later rules reveal hidden financial stress
Four times more Australians are struggling to pay off official buy now, pay later loans since predatory credit offers came under national regulations, meaning the reforms are working, a credit expert says.
Documented hardship rates for BNPL agreements where borrowers are temporarily unable to meet loan payments increased from 0.06 percent in June 2025 to 0.24 percent in March 2026.
Rather than capturing a real increase in hardship, credit reforms have revealed financial stress previously hidden from the broader credit ecosystem, according to Kevin James, chief resolution officer at credit reporting agency Equifax.
“Official distress rates have risen to 0.24 per cent by March 2026, while actual short-term and late-stage debt levels have improved,” Mr James said.
It’s been 12 months since the sector, which has remained largely unregulated for more than a decade since Afterpay and Zip first introduced digital credit alternatives based on the old ordinary purchasing system, came under the National Consumer Credit Protection Act.
“This shows that the regulations are doing exactly what they were designed to do: reduce the risk of default,” Mr. James said.
Compared to other types of loans, Australians were more likely to have problems with mortgages (0.5%) and personal loans (1.0%).
The 2025 reforms coincided with the peak of BNPL demand accounting for a quarter of unsecured credit inquiries, which had fallen to 14.5 percent by April.
“Our observation is that the decline in demand is not a sign of a struggling industry, but rather a market correcting itself under the formal regulatory reporting framework,” Mr. James said, noting that the segment has matured in more ways than one.
The average credit score on BNPL applications increased by 133 points to 685 points by April of the year, and the credit score gap with traditional credit card applications decreased from 12.7 percent to 4 percent.
The average age of BNPL users has also increased; While demand from the 18-25 age group has contracted, users aged 55 and over made up more than 15 percent of surveys in April, up from nine percent in June 2025.
However, different age groups use this service in very different ways.
“Younger segments are turning to high-speed, small-scale ‘micro-consumption’, with inquiries averaging $260, while older Australians are using BNPL for larger-scale, low-frequency purchases such as white goods or travel, charging around $2,800 per inquiry,” Mr James said.
Even though they were dealing with smaller numbers, the younger group was more likely to experience problems; While the short-term debt rate was 4.3 percent, this rate was only 1.8 percent for those aged 55 and over.
“Compared to a sharper rise in mortgage distress, consumers appear to be prioritizing these smaller, predictable installments to maintain access to short-term credit amid persistent cost-of-living pressures,” Mr. James said.
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