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

Prices are skyrocketing across Australia. Global supply chain woes, floods, the Covid-19 pandemic and the Russian-Ukrainian conflict – all have combined to send price levels skyrocketing in the country. Due to soaring inflation, the cost of living is getting tough for Australians, and so they are saving riskier ways to meet day-to-day expenses.

Growing popularity of BNPL in Australia

The high cost of living means Australians struggle to afford essentials

In 2021, Australian inflation was 3.5%. However, salaries increased by 2.1%. When wage increases are lower than the rate of inflation, most of the population falls behind. Australians were already struggling to meet day-to-day expenses due to the woes of the pandemic. Recently, with the recent Russian invasion, gasoline prices have increased by 32.3%. Prices for basic necessities such as vegetables increased by 6.1%.

Overall, Australians have no choice but to borrow through the BNPL and payday lenders to meet rising expenses.

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A Look at BNPL’s Borrowing System and Payday Lenders

As the term suggests, under BNPL people buy the items and services and pay later. As for payday lenders, they provide short term unsecured loans. However, the interest rate applied to these loans is generally very high. Due to rising inflation and near stagnant wages, Australians tend to seek out more BNPLs and payday lenders to meet their day-to-day expenses.

Some economists argue that it is more risky for the population. Let’s decipher the repercussions of such borrowings.

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What if people depend on the BNPL and payday lenders?

Because prices are skyrocketing and wages remain nearly flat, Australians are taking on more debt. Credit card bills are rising and repayment of payments is becoming difficult for most people. Australians’ credit card bills are rising steadily for the first time in four years.

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

This allows people to fall into a spiral of debt in which most of their subsequent income goes to paying off previous loans. So they apply for a new loan, and the loop continues. Additionally, a recent report by Global RFI said 38% of Australian consumers use paid 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 demanding better consumer protection. Although the psychology of consumer behavior may push more Australians into this borrowing scheme, with every financial decision people need to be aware of the repercussions.