Buy now, pay later rules reveal hidden financial stress
· Michael West
Four times as many Australians are officially struggling to pay off buy now, pay later loans since the disruptive credit offering came under national regulations, which means the reforms are working, a credit expert says.
Documented hardship rates – when borrowers are temporarily unable to meet credit payments – for BNPL agreements rose from 0.06 per cent in June 2025 to 0.24 per cent in March 2026.
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Rather than catch an actual increase in hardship, the credit reforms had revealed financial stress previously hidden from the broader credit ecosystem, according to Kevin James, chief solutions officer at credit reporting agency Equifax.
“While formal hardship rates rose to 0.24 per cent by March 2026, actual short-term and late-stage arrears levels have improved,” Mr James said.
Kevin James says the credit reforms have revealed previously hidden financial stresses. (PR IMAGE PHOTO)It has been 12 months since the sector came under the National Consumer Credit Protection Act, after being largely unregulated for more than a decade since Afterpay and Zip first revealed their digital credit alternatives based on the old lay-buy system.
“This can suggest that the regulations are doing exactly what they were designed to do: reduce default risk,” Mr James said.
In comparison to other credit types, Australians were more likely to fall into trouble with mortgages (0.5 per cent) and personal loans (1.0 per cent).
The 2025 reforms coincided with a peak in BNPL demand, when it accounted for one-in-four unsecured credit enquiries, and that proportion fell to 14.5 per cent by April.
”Our observation is that the demand dip is not a sign of a struggling sector, but rather a market correcting itself under a formal regulatory reporting framework,” Mr James said, noting the segment was maturing in more ways than one.
The average credit score on BNPL applications improved by 133 points to 685 points in the year to April, narrowing the credit score gap with traditional credit card applications from 12.7 per cent to four per cent.
The average age of BNPL users has also increased, as demand from 18-25s contracted while users 55 and above made up more than 15 per cent of enquiries in April, up from nine per cent in June 2025.
Older Australians are more likely to use BNPL for larger-scale purchases such as travel. (Bianca De Marchi/AAP PHOTOS)However, the different age groups use the service in vastly different ways.
“Younger segments are leaning into high-velocity, small-scale ‘micro-consumption’ with average enquiries of $260, whereas older Australians are utilising BNPL for larger-scale, low-frequency purchases such as white goods or travel, averaging nearly $2,800 per enquiry,” Mr James said.
Despite dealing with smaller figures, the younger cohort was more likely to run into trouble, with a short-term arrears rate of 4.3 per cent compared to just 1.8 per cent for those 55 and above.
“When compared to the sharper rise in mortgage hardship, it appears consumers are prioritising these smaller, predictable instalments to retain access to short-term credit amidst persistent cost-of-living pressures,” Mr James said.