BNPL Crackdown Drives Borrowers to Small Personal Loans

Due to stricter rules that restrict access to buy now, pay later services, Australians are turning to small personal loans as their main backup option. This change demonstrates how short-term borrowing is shifting toward regulated credit products due to stricter compliance standards.

Due to the requirement that BNPL providers maintain Australian credit licenses and adhere to responsible lending responsibilities as of June 10, 2025, many consumers have reevaluated their borrowing alternatives. The September 2025 quarter saw $9.3 billion in personal loan volumes, a blatant sign that consumers are shifting to more regulated and organised forms of financing.

Understanding the BNPL Regulatory Shake-UpWhat Changed on June 10, 2025

BNPL services are now subject to the same regulations as typical credit issuers thanks to the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024. Businesses like Afterpay, Zip, and Humm now have to adhere to strict regulations that they were previously exempt from.

Credit checks are now required before BNPL providers approve new clients or raise spend caps. They must become members of the Financial Complaints Authority of Australia. This gives consumers access to free dispute resolution when things go wrong. The regulations also cap fees and charges. These measures close loopholes that allowed some providers to rack up significant late payment penalties.

For borrowers, this changes the BNPL experience considerably. The quick approval process that made these services attractive now involves greater scrutiny. Your repayment history gets reported to credit bureaus. Missed payments can damage your credit score and affect future loan applications.

Why the Government Stepped In

Australia has the highest BNPL adoption rate globally. Around 40% of customers aged 18 to 39 used these services regularly in 2024. The value of BNPL transactions reached approximately $19 billion in the 2022-23 financial year alone.

Consumer protection concerns prompted regulatory action. Without credit checks or responsible lending obligations, some users accumulated debt across multiple platforms. Lenders had no visibility of their total commitments. The proportion of Australians incurring BNPL late fees jumped from 5% in 2020 to 20% by January 2024. Research found that 29% of BNPL users had missed paying another bill to meet their BNPL repayments in the past year.

The Shift to Small Personal Loans: By the NumbersRecord Personal Loan Growth

Personal loan borrowing has climbed steadily since June 2020. The September 2025 figure excludes refinancing. This means the $9.3 billion represents genuinely new borrowing by Australian households seeking alternatives to increasingly regulated BNPL services.

Credit reporting agency Equifax confirms the trend. Applications for unsecured loans increased by almost 15%. This surge coincides with the BNPL regulatory changes. Australians are now taking out $2.5 billion in new personal loans each month. Digital lenders like MeLoan are streamlining the application process to meet growing demand.

The average unsecured personal loan sits at $22,643. This varies significantly by purpose. Vehicle loans average $34,827 while medical expenses typically require around $9,600. Interest rates for unsecured personal loans averaged 10.54% in November 2025.

Who’s Borrowing and WhyLoan Purpose Breakdown:

• Vehicle purchases: 59%
• Debt consolidation: 23%
• Home improvements: 6%
• Other needs (medical, education, emergency repairs): 12%

Personal loan borrowers maintain an average credit score of 801. This falls into the ‘very good’ to ‘excellent’ range. Most successful applicants have solid credit histories. This average has been steadily increasing over time. Lenders are being selective about who they approve whilst competition drives innovation in credit assessment methods.

Economic analysis indicates consumers are increasingly relying on borrowing to cope with rising cost of living pressures. Borrowing for essential items like vehicles increased sharply. The shift towards small personal loans for specific and planned expenses represents a more structured approach to credit management compared to open-ended BNPL arrangements.

BNPL vs Small Personal Loans: A 2025 ComparisonThe New BNPL Reality

The convenience that made BNPL attractive has diminished under regulation. Spend limit increases now require credit assessments. You must provide consent before providers check your credit file. A low credit score won’t automatically result in a lower spend limit. Providers can decline increases if they determine you can’t afford more credit.

Credit checks appear on your file. If you apply for multiple BNPL accounts or limit increases within a short period, this could signal financial stress to other lenders. Your BNPL activity now forms part of your credit profile. This potentially affects your ability to secure car loans, mortgages or credit cards.

Personal Loan Advantages in the New Landscape

Small personal loans offer several benefits that become more apparent as BNPL loses its regulatory advantages. Borrowers receive a lump sum upfront (typically between $2,000 and $100,000). This provides flexibility for larger purchases or multiple expenses at once.

Fixed repayment structures make budgeting easier. Borrowers know exactly how much they’ll pay each month over a term typically ranging from one to seven years. The average interest rate of 10.54% for unsecured loans might seem higher than BNPL’s advertised zero interest. However, personal loans don’t hide costs in late payment fees.

Lenders must follow responsible lending guidelines. They’ll only approve loans borrowers can reasonably afford to repay. This regulatory protection prevents consumers from taking on unmanageable debt. Making timely repayments can improve credit scores through Comprehensive Credit Reporting.

Interest rates vary based on credit profiles. Borrowers with excellent scores around 800 or higher might secure rates around 9.79%. Those with challenged credit could face rates around 25.25%. The lowest available unsecured personal loan rate currently sits at 5.76% from peer-to-peer lender Harmoney.

When BNPL Still Makes Sense

Despite the regulatory changes, BNPL suits certain situations. Small purchases under $2,000 with repayment terms of six to eight weeks remain interest-free if paid on time. The convenience factor persists for users with excellent payment discipline who can confidently meet fortnightly instalments.

Market Insights on the Credit Landscape Shift

Recent research reveals that 62% of BNPL users feel more confident now that the sector faces regulation. Analysis shows Afterpay customers have an average credit score of 743. This is similar to credit card applicants at 771 and higher than personal loan applicants at 646.

Only 2.9% of Afterpay customers missed a payment by the third month of account activity. This compares to 3.7% of personal loan holders. However, only 32% of BNPL users understand what a credit score is. Even fewer (just 28%) have checked their credit score in the past 12 months.

Industry data suggests the personal loan market shows strong momentum. Projections indicate growth from $1.66 billion in 2024 to $13.16 billion by 2034. Digital lending platforms continue expanding. They offer streamlined applications and faster approvals than traditional banks. Providers including MeLoan have adapted to meet changing consumer preferences for transparent and regulated credit products.

Making Informed Borrowing DecisionsKey Considerations for BorrowersEssential Questions to Ask:

1. Including all costs, how much does borrowing cost in total?
2. Can I afford repayments and other obligations at the same time?
3. How does this credit product impact my credit score?
4. What options are there for financial hardship assistance?

Available Support Resources

• National Debt Helpline: 1800 007 007 for confidential financial counselling
• AFCA for disputes with credit providers
• CreditSmart.org.au for educational resources on credit scores
• Community financial counselling services

Financial counsellors can negotiate with lenders and explain consumer rights without judgment. Seeking professional advice represents a proactive approach to financial management.

Warning Signs to Watch

Vigilance against predatory lending practices is necessary for consumer protection. Concerns should be raised right away if payday loans charge rates higher than the 48% yearly ceiling. A large payday lender was fined $3.2 million in March 2025 for using concealed fees to cover up exorbitant expenses. A lender should be closely examined if they refuse to provide a comprehensive explanation of all expenses up front. It is recommended to get independent advice before moving forward when terms appear ambiguous or unreasonable.

Future Outlook for Australian Consumer Credit

As Australians look for clear, regulated alternatives to BNPL services, the personal loan market is showing significant growth. Traditional banking practices are being challenged by the competitive rates and streamlined procedures offered by digital platforms.

As smaller suppliers find it difficult to comply with license regulations, the BNPL industry is expected to consolidate. Regulators are still keeping an eye on how recent developments impact consumer behavior and financial security.

The current environment provides Australian borrowers with more options and protection than in the past. Honestly comparing total expenses and taking the time to comprehend options are still crucial. The best decision is solely based on your circumstances and repayment ability.

The Australian credit industry is setting itself up for long-term growth that puts consumer protection first without restricting access to essential funding as regulatory frameworks develop and consumer awareness rises.