Why BNPL Debt Is Rising: A Deep Dive into Australia’s New Credit Landscape

Buy Now Pay Later (BNPL) schemes have become a household name in Australia. Once pitched as a way to spread out the cost of a pair of shoes or a mobile phone, BNPL services are now being used to pay for groceries, utility bills and even rent. This shift comes at a time when living costs in Sydney, Melbourne, Brisbane and beyond are soaring; the result is a surge of people turning to BNPL and an alarming increase in unpaid balances. In this article, we unpack why BNPL debt is rising, explore the role of director guarantees in business debt, and provide practical steps for Australians to regain control.

BNPL Adoption: From Niche to Mainstream

Explosive Market Growth

Australia’s BNPL market has exploded. According to research by Mordor Intelligence, the market value grew from USD 19.50 billion in 2025 to an estimated USD 22.71 billion in 2026 and is projected to reach USD 48.66 billion by 2031. That represents a 16.45% compound annual growth rate over 2026‑2031.

Several factors have fuelled this growth:

• Digital commerce and smartphone penetration – Real‑time payment rails and ubiquitous smartphones make BNPL effortless at checkout.
• Demographic shifts – Millennials and Gen Z are driving adoption, controlling 44.25% of the market in 2025 with Gen Z forecast to grow at 19.78% CAGR through 2031.
• Merchant incentives – Retailers see BNPL as a way to lift conversion rates and average order values. Fashion and apparel accounted for 26.85% of Australia’s BNPL sales in 2025, while healthcare and wellness are projected to expand rapidly.
• Fintech dominance – Fintech firms held 80.95% of the BNPL market in 2025. Their agility and focus on seamless user experiences allow them to outpace banks.

Shifting Use Cases: From Discretionary to Essential

BNPL began as a way to buy discretionary items like shoes or electronics. However, rising living costs and stalled wages have pushed Australians to use BNPL for essentials:

• Electricity and groceries – Financial counsellors report that more clients are using BNPL to pay for energy bills and food.
• Multiple loans – In the United States, 47% of BNPL users admitted paying late at least once in the past year, with 1 in 4 holding three or more active BNPL accounts. While Australian‑specific data is limited, counsellors say a similar pattern is emerging as households juggle Afterpay, Zip and Klarna.
• Exhausted credit options – Consumers calling the National Debt Helpline often maxed out credit cards before turning to BNPL, according to the Consumer Action Law Centre. Many feel trapped in a debt spiral.

Cost‑of‑Living Crisis

The rise in BNPL debt cannot be divorced from Australia’s cost‑of‑living crisis. Calls to the National Debt Helpline rose by up to 37% year‑on‑year as rising borrowing costs, high rents and soaring food and energy prices pushed more people into financial distress. Counsellors note that many callers haven’t experienced a specific crisis (like job loss or illness); instead, their income simply hasn’t kept up with mortgage or rent increases.

BNPL Regulation: A New Era of Credit Rules

The rapid expansion of BNPL has prompted the Australian government to introduce tougher consumer protections. From 10 June 2025, BNPL providers operate under the National Consumer Credit Protection Act. The reforms include:

• Licensing and dispute resolution – BNPL providers must hold an Australian credit licence and join the Australian Financial Complaints Authority (AFCA). This gives consumers access to free, independent dispute resolution.
• Responsible lending obligations – Providers must establish hardship strategies and assess a customer’s ability to repay. Credit checks are now recorded on your credit report.
• Credit reporting – On‑time BNPL payments may help build credit, but missed or late payments can negatively impact your credit score. Lenders will consider BNPL usage when assessing mortgage or loan applications.

These rules align BNPL with other credit products, meaning overspending now carries more serious consequences.

Why BNPL Debt Is Rising

1. Convenience That Encourages Overspending

BNPL is easy to use and easy to get. Quick approvals and interest‑free marketing create a false sense of affordability. Many users open multiple accounts across different providers, making it hard to track repayment dates.

2. Lack of Budgeting Discipline

Some consumers treat BNPL as “free money” and fail to integrate repayments into their budgets. Late fees, which are a major revenue source for providers, can quickly accumulate. For example, Klarna warns that missed payments are rolled into the next instalment and late fees apply. Afterpay charges a $10 late fee on orders over $40, with additional fees after seven days, capped at 25% of the purchase price.

3. Using BNPL for Essentials

Using BNPL to cover basic living costs is a red flag. When people rely on BNPL to pay rent, groceries or utilities, there’s often little left to repay the instalments, creating a cycle of debt and late fees.

4. Multiple BNPL Accounts & Cross‑Selling

Providers encourage cross‑selling (offering in‑store, online and subscription‑based BNPL). This means a single user may hold accounts with Afterpay, Zip, Klarna and Humm simultaneously. Managing four sets of repayment schedules is challenging, leading to missed payments.

5. Minimal Credit Screening (Until 2025)

Before June 2025, BNPL providers were exempt from credit laws and could offer loans without assessing affordability. That made it easy for people already in debt to open new BNPL accounts. While the new regulations require credit checks, the legacy of easy approval remains ingrained in consumer behaviour.

6. Demographic Targets

Marketing campaigns target millennials and Gen Z with promises of “interest‑free” shopping and frictionless checkout. Younger people with limited credit experience may be more susceptible to overspending or mismanaging multiple loans.

7. Hardship and Mental Health Factors

Financial stress affects mental health. As call volumes to the helpline increase, counsellors report that clients feel embarrassed or overwhelmed, delaying their call for help. BNPL’s quick access can mask underlying issues like job insecurity or rent stress. People often call only when late fees snowball or debt collectors start calling.

Director Guarantee Debt: Hidden Risks for Business Owners

What Is a Director Guarantee?

A director’s personal guarantee is an agreement where a company director promises to cover their company’s debt if the business cannot pay. If the company defaults, the creditor can seek payment from the director personally. These guarantees are common for credit cards, bank loans and supplier accounts.

Importantly, personal guarantees are generally continuing and have no time limit. Even if you resign as a director, you remain liable unless you negotiate release or repay the debt. Creditors can pursue directors immediately when the company defaults; they don’t need to wait until liquidation.

How BNPL & Director Guarantees Intersect

Small businesses have increasingly used BNPL for inventory, trade supplies and cash‑flow bridging. If these accounts require a personal guarantee, directors may unwittingly make themselves personally liable for BNPL debt. For example, a director might sign a supplier agreement that includes a personal guarantee for the BNPL credit facility. If the business fails to repay, the director’s personal divisible property (like the family home) can be at risk.

Managing Director Guarantee Debt

1. Check the fine print – Understand whether BNPL or supplier accounts contain personal guarantee clauses. Never sign a guarantee without fully understanding the implications.
2. Negotiate the terms – Where possible, negotiate to remove or limit personal guarantees, especially when dealing with large suppliers or lenders.
3. Monitor company credit cards – Many company cards have personal guarantee clauses. Ensure balances are paid promptly to avoid personal liability.
4. Seek professional advice – If the business is struggling, talk to a restructuring practitioner or insolvency advisor before default occurs. Director guarantees can often be addressed within a small business restructuring plan, which can freeze creditor enforcement and allow the company to propose a repayment plan.

How to Tackle Rising BNPL Debt: Personal & Business Strategies

1. Audit Your BNPL Accounts

List all BNPL providers you use (Afterpay, Zip, Klarna, Humm, PayPal). Note the repayment dates, total outstanding balances and late fee policies.

2. Prioritise Essentials & Debts

Pay rent, utilities, and fines first. Government fines can lead to licence suspension or legal action if ignored. BNPL debts, while important, are usually less urgent than keeping a roof over your head.

3. Consolidate & Simplify

If multiple BNPL accounts are unmanageable, consider consolidation. Debt consolidation loans or a formal Part IX debt agreement may reduce overall repayments and freeze interest charges. However, formal solutions have eligibility criteria and credit impacts; consult a financial counsellor or insolvency practitioner.

4. Seek Hardship Assistance

Contact BNPL providers as soon as you anticipate trouble. Regulations now require providers to offer hardship arrangements and assess affordability. Many will pause payments, waive late fees or extend repayment terms.

5. Use Budgeting Tools & Support Services

Treat BNPL repayments like any other bill. Set up automatic payments to avoid missing instalments. Financial counsellors can help structure a budget and negotiate with creditors. The National Debt Helpline (1800 007 007) offers free, confidential advice. In states like Western Australia, rent relief programs provide one‑off payments for arrears. Tenants Victoria offers free financial counselling for rent, utility and credit debts.

6. Understand Your Rights

Know that debt collectors must treat you fairly. You can request contact in writing and they cannot harass you. Under the new credit laws, BNPL providers must clearly disclose fees and offer dispute resolution..

7. Plan for Business Debt

If you’re a director facing BNPL debt through your business:

• Check whether you signed a personal guarantee and seek advice if you have.
• Consider the Small Business Restructuring process, which allows directors to remain in control while proposing a plan to creditors. Unsecured creditors cannot enforce debts during this process.
• Ensure tax and super obligations are current before entering a restructure.

8. Build Financial Resilience

BNPL can be useful when managed responsibly. However, it shouldn’t replace an emergency fund or sustainable budgeting. Consider building up savings, paying off high‑interest credit first and limiting BNPL use to occasional purchases you can confidently repay.

Frequently Asked Questions (FAQs)