Big rise in Aussies aged under 35 borrowing money to cover costs

Car repairs, medical expenses and other bills are forcing young adults into costly financial decisions as they borrow more than ever.

As bills pile up for young adults, more are borrowing to cover the cost. Picture: iStock

Young adults are increasingly borrowing money to help balance their bills as Australia’s cost-of-living crisis lingers longer than most people expected.

New research by loan matching platform Lendela has found a surge in under-35s borrowing money to cover expenses, and more are trashing their credit ratings and their future ability to secure a mortgage or other loan.

Its analysis spanned 22,000 loan applications and found the average young borrower’s loan size was $9000, while the top reason for borrowing was car repairs (15.9 per cent). This was followed by debt consolidation (13.4 per cent), medical expenses (11.4 per cent), car purchases (12.6 per cent) and bills (10.7 per cent).

The share of loan applications from Generation Z – aged 18 to 27 – had surged 150 per cent in a year, it found, and under-35s made the majority of all applications.

“We’ve seen a rapid spike in the share of loan applications coming from Gen Zs and Millennials, largely to cope with rising costs,” Lendela country manager Jake Osborne said.

“We see signs that point to a lack of awareness of credit management among younger borrowers, such as an uptick in young borrowers with lower credit ratings and high numbers of existing debts and credit facilities,” he said.

“The share of all debt consolidation borrowers with existing high-cost credit facilities, such as payday loans, salary advances and small amount credit contract loans, has skyrocketed over the past year, reaching 50 per cent of all debt consolidation loan applicants.”

Mr Osborne said high-cost debts, which also included credit cards and lines of credit, were characterised by steep interest rates and fees and could lead to the stacking of multiple loans without lenders being aware of each other.

This could mean someone’s monthly loan commitments were greater than their income, “putting borrowers in unsustainable debt cycles”, he said.

Oracle Lending Solutions managing director Angelo Benedetti said he had noticed a lot more inquiries about personal loans.

“It is an issue because it’s all bad debt that they’re trying to borrow,” Mr Benedetti said.

Debt was only seen as good when used to buy your own home, or income-producing assets and investments, he said, and multiple consumer debts can derail peoples’ future home loan applications.

Mr Benedetti said people should do everything they could to be “tightening the belt as much as possible” and not borrowing to pay bills.

“Because it’s unsecured lending, interest rates are higher,” he said.

“It’s quick money so it’s more expensive money.

As bills pile up for young adults, some are forced into borrowing money. Picture: iStock

“We probably have another six months of interest rates where they are, and then rates should start dropping and that will make life easier for a lot of people.”

It’s not only young borrowers who are struggling with living costs, and separate research by consumer credit reporting agency Equifax has found a spike in credit card inquiries in the past year by people aged 36 to 55.

“We’re seeing an increase in demand from family age consumers,” an Equifax spokesman said.

“The ongoing economic pressure, including rising mortgage repayments, has contributed to a more pronounced increase in credit card demand among consumers aged 36-45.”

Equifax found overall demand for credit cards increased 8.7 per cent in the June quarter, but demand for buy now, pay later loans dropped 13.5 per cent.

Originally published as Big rise in Aussies aged under 35 borrowing money to cover costs