The conversation around borrowing is shifting—rapidly and sharply. The last two years have seen interest rates rise at a speed not witnessed since the early 1990s. Meanwhile, essential costs such as rent, groceries, electricity, fuel, and insurance premiums continue to climb with no sign of meaningful relief. For many households, wages are not keeping pace.
This economic pressure isn’t just stretching budgets; it’s reshaping how people approach debt, credit, and risk. Traditional borrowing behaviours are giving way to short-term fixes, alternative online lenders, and more reactive financial decisions. In some cases, people borrow not to get ahead but simply to get through.
Credit Demand Is Up—But Not Across the Board
Data from Equifax shows that while mortgage applications have slowed significantly since the start of the RBA’s rate hikes, personal loan applications have surged. In the third quarter of 2023 alone, personal loan demand rose by over 10% year-on-year, with non-bank lenders accounting for a growing share of approvals.
This shift isn’t driven by discretionary spending or large-ticket items. It’s increasingly tied to necessity-based borrowing: debt consolidation, emergency bills, school fees, and cost-of-living adjustments like car expenses or medical costs.
Buy Now Pay Later (BNPL) services have also seen renewed uptake among young adults and a broader demographic. Platforms such as Zip, Humm, and Afterpay have begun functioning less as retail convenience tools and more as income-smoothing mechanisms for everyday essentials.
Changing Lender Preferences: Speed Over Structure
One of the most pronounced behavioural shifts has been in lender choice. A decade ago, borrowers typically approached their primary bank for credit. Now, that dynamic has flipped.
Borrowers are increasingly turning to fintech lenders and digital-first credit providers, not necessarily because they offer better rates, but because they offer faster access and fewer hoops.
Platforms like MoneyMe, Wisr, and Harmoney have capitalised on this shift. They use open banking data, behavioural analytics, and real-time decisioning to offer loan approvals within hours—sometimes minutes. For a borrower facing an urgent shortfall, the speed and accessibility outweigh traditional concerns about interest rates or term structures.
Credit Cards Are Back—but With New Limits
Interestingly, after years of declining usage, credit cards are seeing a resurgence. Data from the Reserve Bank shows a modest but steady uptick in active credit card accounts since mid-2023. However, the way people are using them has changed.
Rather than revolving debt, many cardholders are using credit cards as buffer accounts—tapping them to float essential purchases and then repaying within the interest-free window. The appeal lies in the flexibility and lack of upfront fees, especially compared to payday loans or BNPL platforms.
That said, average credit card limits have decreased, and more consumers are opting for low-rate, no-frills cards as opposed to rewards-heavy products. This suggests a more cautious, needs-based approach to credit—using it as a tool, not a crutch.
A New Normal: Borrowing to Maintain the Basics
The cost-of-living crisis has fundamentally shifted the purpose of borrowing. Where once loans might have enabled a lifestyle upgrade—a new car, a home renovation, a holiday—many are now borrowing simply to maintain living standards that were previously manageable.
Financial Counselling Australia reports a growing number of clients using loans to cover rent gaps, energy bills, childcare, and even groceries. This trend is particularly evident among renters, whose housing costs have surged by double-digit percentages in most capital cities over the last 12 months.
In past downturns, borrowing typically dropped as households cut spending and focused on deleveraging. This time is different. The economic pain is not discretionary—it’s structural.
Short-Term Thinking, Long-Term Consequences
With more borrowers using short-term credit products to manage ongoing expenses, the risk of debt fatigue is growing. The Consumer Action Law Centre has flagged the increasing use of multiple BNPL accounts, short-term loans, and payday-style credit facilities by individuals already under financial strain.
A concerning pattern is emerging:
- A borrower uses a BNPL platform to spread grocery costs.
- They take out a small loan to cover their energy bill.
- When rent is due, they dip into a credit card or overdraft.
- Within months, they are juggling four to five repayment schedules on different terms, with different penalty structures.
This layered debt model creates a fragile structure—one missed payment can cause a domino effect.
Who’s Being Impacted the Most?
The shift in borrowing behaviour is not evenly distributed. Certain groups are under disproportionate pressure:
- Single-income households: Especially those with children or dependents
- Casual and gig economy workers: With unpredictable income cycles
- Renters in major cities: Where rental increases have outpaced income growth
- Young adults: Particularly those who entered the workforce post-2020 and haven’t had a chance to build savings buffers
These groups are borrowing more often, in smaller amounts, and from more diverse sources—often without access to low-rate credit products.
What’s Changing in Response?
Lenders, regulators, and advocacy groups are taking notice.
- The Australian Securities and Investments Commission (ASIC) has increased scrutiny of high-cost lenders and BNPL operators, pushing for stronger affordability checks and improved hardship processes.
- Fintech platforms are starting to offer budgeting tools, repayment reminders, and spending insights to help users manage multiple debts.
- Banks are reviewing their credit risk models to better reflect today’s borrower realities—some are even trialling income-linked repayment plans for personal loans.
At a policy level, there is growing support for expanding access to low-interest, ethical lending through providers like Good Shepherd, which offers No-Interest-Loans (NILS) for essential goods and services.
Final Thoughts
The cost-of-living crisis has changed the shape and intent of personal borrowing. It’s no longer about access to luxuries—it’s about access to stability. As wages lag and core expenses rise, credit is becoming a tool to bridge permanent gaps, not temporary ones.
This shift demands more than caution. It demands structural change—better protections, smarter products, and a deeper understanding of why people borrow. Because when debt becomes a coping mechanism, the problem isn’t the borrower. It’s the system they’re navigating.
