Why Aussies are more likely to struggle paying off a personal loan, new Experian data reveals

Aussies who have borrowed to renovate their kitchen or go on holiday are most at risk of financial stress, new data shows. 

The most aggressive rate hikes in a generation are causing severe financial hardship, with young people and those who took on a new home loan after 2019 particularly at risk of mortgage stress.

But when it came to missing repayments, those who took out a personal loan to fund expenses like a kitchen renovation, holiday or boat were most at risk, consumer credit check company Experian has revealed in a new report.

One in 15, or 6.7 per cent, of borrowers with a personal loan had missed a repayment during the 2023-24 financial year, with these unsecured products often having double-digit interest rates.

Car loans were the next riskiest category with one in 17, or 6.1 per cent, falling behind. 

Experian head of innovation Jordan Harris said borrowers struggling to pay off a personal loan often had several of these debts and very low levels of savings compared to other kinds of borrowers.

‘The sort of borrower who would take out a personal loan might not have access to other forms of savings,’ he told Daily Mail Australia.

‘When people have three or more personal loans, that’s a real risk factor – they’re people taking out loans with multiple different providers concurrently.

Experian head of innovation Jordan Harris said borrowers struggling to pay off a personal loan often had several of these debts and very low levels of savings compared to other kinds of borrowers

‘When you have several personal loans, yes that’s a lot of repayments.’ 

Car loan borrowers are also at risk, with struggling customers often prioritising paying their home mortgage first, only to fall behind with vehicle loan repayments.

‘Those people that have a car loan are still seeing their daily costs going up,’ he said.

‘A lot of people with a car loan may also have a mortgage so they may also be feeling some stress with mortgage repayments as well.’  

By comparison just 1.3 per cent – or one in 75 – home borrowers were behind on their mortgage, despite the Reserve Bank’s 13 interest rate rises in 2022 and 2023. 

Credit ratings agency Moody’s Ratings put the proportion of Aussie borrowers, 30 days or more behind on their repayments, at 1.73 per cent in the June quarter.

‘Australian mortgage delinquency rates, which increased over the June quarter, will continue to rise moderately over the rest of this year as high interest rates and sticky inflation put financial stress on households,’ it said.

Experian said those most at risk had taken out a loan since 2019, a shortly before the RBA cash rate was cut to a record-low of 0.1 per cent during Covid.

‘The levels of missed home loan repayments increased significantly for borrowers that took out a mortgage in the last five years,’ it said.

‘The proportion of mortgage accounts that were opened after 2019 with one or more missed repayments have increased six times more than those that took out a home loan before 2007, and five times higher than home loans opened between 2008 and 2015.’ 

Home loans approved in 2023, during the RBA’s hiking cycle, were regarded as particularly risky.

‘Diving deeper into more recent performance of new home loans, the levels of missed repayments is getting progressively worse,’ it said.

Those who took out a personal loan to fund expenses like a kitchen renovation or holiday were most at risk, consumer credit check company Experian has revealed in a new report (pictured is Honolulu in Hawaii)

‘After six months, almost twice as many home loans taken out in 2023 had missed one or more repayment compared to home loans opened in 2021.’ 

Younger borrowers and those who signed up to a new loan more recently were in most danger. 

‘While missed repayments and defaults have plateaued in the last six months, the data shows a number of segments, including younger borrowers, those that opened accounts in the last five years, and those with multiple accounts are showing higher rates of financial stress,’ the report said. 

‘Credit stress and rates of missed repayments are getting worse with every new generation of borrower.’ 

Experian’s Risk Radar Report, based on a a survey of risk managers at Australia’s major banks, showed concern about rising unemployment in the wake of aggressive rate hikes.

The surge in home prices has also meant borrowers taking on more debt, with two-thirds of risk managers concerned about this.

High inflation is also depleting savings, and leading to some borrowers struggling to service their repayments. 

Seven in 10 risk managers also expected financial stress to get worse in the year ahead.