Australians are borrowing more through BNPL, payday lenders, as the cost of living rises

Prices are skyrocketing across Australia. Global supply chain problems, floods, the Covid-19 pandemic and the Russia-Ukraine conflict have all piled up to push up price levels in the country. With inflation soaring, Aussies’ living expenses are becoming a challenge, and they’re bouncing back from riskier ways to meet day-to-day expenses.

BNPL increasing popularity in Australia

Due to the high cost of living, Aussies struggle to afford basic necessities

In 2021, Australian inflation was 3.5%. However, wages increased by 2.1%. When wage growth is less than inflation, most of the population falls behind. Australians have already struggled to cover daily expenses due to the pandemic woes. Recently, with the recent Russian invasion, gasoline prices have risen by 32.3%. Prices of staple foods such as vegetables have increased by 6.1%.

All in all, Australians are left with no choice but to borrow through BNPL and payday lenders to keep up with growing spending.

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A look at the BNPL and payday credit system for borrowing

As the term suggests, under BNPL people buy the items and services and pay later. As far as payday lenders are concerned, they provide short-term unsecured loans. However, interest rates on such loans are usually very high. With inflation soaring and wages near stagnation, Aussies are tending to seek out more BNPL and payday lenders to help cover their day-to-day expenses.

Some economists argue that this is riskier for the population. Let’s decipher the implications of such bonds.

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What happens when the population becomes dependent on BNPL and payday lenders?

As prices soar and wages remain almost unchanged, Aussies are getting more and more into debt. Credit card bills are rising and paying back payments is becoming a challenge for most demographics. Aussies’ credit card bills climb consistently higher for the first time in four years.

One of Australia’s leading subprime lenders, Cash Converters, has remarkably expanded its loan book in 2021. The annual interest rate on his loans is 48%. The interest rate is so high but people have no choice but to seek these loans to cover their household and other expenses.

This puts people in a spiral of debt, with most of their subsequent income going towards paying off previous loans. So they look for a new loan and the loop continues. Also a recent report from RFI Global reported that 38% of Australian consumers use pay later apps for household bills, 37% for groceries and 27% for petrol.

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In conclusion, it appears that consumer advocates across Australia are calling for better consumer protection. While the psychology of consumer behavior could push more Aussies into this credit system, people should be aware of the implications of any financial decision.