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

New data shows Australians who borrowed money to renovate their kitchen or go on holiday are at greatest risk of financial stress.

The steepest interest rate hikes in a generation are causing serious financial problems. Young people and people who took out a new mortgage after 2019 are particularly at risk of mortgage stress.

But when it comes to defaulting on payments, people who took out a personal loan to fund expenses such as kitchen renovations, a holiday or a boat are most at risk, according to a new report from credit checking company Experian.

One in fifteen (6.7 percent) of borrowers with a personal loan missed a repayment in the 2023-2024 financial year. These unsecured products often have double interest rates.

Auto loans were the second riskiest category, with one in 17 (6.1 percent) being the second highest risk category.

Jordan Harris, head of innovation at Experian, says borrowers struggling to repay a personal loan often have multiple such debts and very low savings levels compared to other types of borrowers.

“The type of borrower who takes out a personal loan may not have access to other forms of savings,” he told Daily Mail Australia.

‘If people have three or more personal loans, that is a real risk factor. This concerns people who take out a loan from multiple providers at the same time.

Jordan Harris, head of innovation at Experian, said borrowers struggling to repay a personal loan often have multiple such debts and very low savings levels compared to other types of borrowers.

‘If you have multiple personal loans, that is indeed a lot of repayments.’

Borrowers with car loans are also at risk. Often, customers in trouble first prefer to pay off their mortgage, but then fall behind on their car loan payments.

“People who have car loans are still seeing their daily expenses increase,” he said.

“Many people with a car loan may also have a mortgage, so they too may experience stress about mortgage payments.”

By comparison, just 1.3 per cent (or one in 75) homebuyers were in arrears on their mortgage payments, despite the Reserve Bank’s 13 rate hikes in 2022 and 2023.

According to credit rating agency Moody’s Ratings, the percentage of Australian borrowers who were 30 days or more behind on their repayments in the second quarter was 1.73 percent.

“Australian mortgage arrears, which rose in the second quarter, are set to continue to rise modestly for the rest of this year as high interest rates and persistent inflation put financial pressure on households,” the report said.

Experian said those most at risk have taken out loans since 2019, shortly before the RBA cut interest rates to a record low of 0.1 per cent during Covid.

“The number of people who are unable to repay their mortgage has increased significantly among borrowers who took out a mortgage in the past five years,” the report said.

‘The percentage of mortgage accounts opened after 2019 that missed one or more payments is six times higher than the percentage of mortgage accounts that took out a mortgage before 2007, and five times higher than the percentage of mortgage accounts that took out a mortgage between 2008 and 2015.’

Mortgages approved in 2023, during the RBA’s rate hike cycle, were seen as particularly risky.

“When we dig deeper into the recent performance of new mortgages, we see that the number of payment arrears is increasing,” the report said.

People who took out personal loans to finance expenses like a kitchen renovation or a vacation are at the greatest risk, according to a new report from consumer credit monitoring company Experian (pictured, Honolulu, Hawaii).

‘After six months, there were almost twice as many mortgages taken out in 2023 in which one or more repayments had been missed, compared to mortgages taken out in 2021.’

Younger borrowers and those who recently took out a new loan were at greatest risk.

“While the number of delinquencies and defaults has plateaued over the past six months, the data shows that a number of segments, including younger borrowers, those who opened an account in the past five years, and those with multiple accounts, are experiencing higher rates of financial stress,” the report said.

‘Credit stress and arrears are increasing as the generation of borrowers grows.’

Experian’s Risk Radar Report, based on a survey of risk managers at Australia’s largest banks, found concerns about rising unemployment as a result of aggressive interest rate hikes.

The rise in house prices has also led to borrowers taking on more debt, a fact that two-thirds of risk managers are concerned about.

High inflation also causes savings to decline and some borrowers to struggle to repay their debts.

Seven out of ten risk managers also expect financial stress to increase in the coming year.