Personal Loans Risk Signals Shift as the Value of 90+ Day Delinquent Accounts Rises Year on Year
Personal loans are displaying early signs of changing borrower behavior in Australia’s credit environment as the overall amount of seriously delinquent accounts keeps rising. Instead of growth being driven only by rising loan volumes, the trend suggests that some households are under more financial strain.
The Equifax Consumer Credit Report states that in the first quarter of 2025, the value of personal loan accounts with more than 90 days in arrears rose 18.7 percent year over year. The average balance has increased to $12,000, up 10% from a year ago, despite the fact that the number of seriously delinquent accounts has remained mostly steady. This indicates that middle-class households are experiencing increasing financial difficulty.
Understanding the Value Versus Volume Disparity
The gap between stable account numbers and soaring dollar values provides crucial insights into current financial hardship. When delinquency rates by account number remain flat while total values jump nearly 19%, the data suggests higher-value borrowers are encountering repayment difficulties at unprecedented rates.
Total limits in arrears reached 9.2% in Q1 2025. This indicates that distressed borrowers now carry larger average debts than 12 months prior. Amortised limits hit a five-year high with a 5% year-on-year climb. This trend extends beyond traditional at-risk borrower segments to impact those who appeared financially secure during the low interest rate environment of 2020 and 2021.
Geographic variations highlight distinct regional challenges across the nation. Queensland recorded the highest growth at 7.8%. NSW followed at 4.5% and Victoria at 3.7%. These differences reflect varying economic conditions including employment stability and housing market performance.
Personal Loans as Financial Stress Indicators
Credit analysts have long recognised personal loans and credit card debt as leading indicators of broader economic stress. The Q1 2025 data supports this analytical framework with compelling evidence.
Credit card arrears jumped 19.3% year on year with both early and late-stage delinquencies rising. The average limit for accounts over 90 days past due increased to $7,100 in Q1 2025 from $6,900 the previous year.In the meantime, the number of mortgage accounts that were 30 to 90 days past due increased by 47% compared to the same period in 2024.
This pattern of advancement is consistent with known borrower behavior when faced with financial strain. Borrowers usually prioritise secured debt commitments like mortgages when household budgets are limited. Arrears on unsecured debts may accumulate. Research confirms that unsecured credit stress typically manifests months before mortgage delinquencies become apparent.
Demographic Patterns in Delinquency Growth
Borrowers aged 31 to 45 are experiencing the fastest arrears growth according to lending industry analysis. This demographic cohort often manages multiple debt obligations simultaneously. These include mortgages and vehicle finance alongside personal loans and revolving credit.
Many within this age bracket purchased property during the pandemic period. They now navigate the combined challenges of elevated interest rates and increased living costs. Property valuations have stabilised or declined in some markets. For individuals who took out loans in 2020 and 2021, the exposure is very severe. During that time, lenders evaluated serviceability using benchmark interest rates that were historically low. Repayment responsibilities for these debtors are now significantly higher than they were during the initial stress test.
Regional Economic Pressures and Geographic Variations
Queensland’s 7.8% growth in arrears limits leads the nation. The NSW increase of 4.5% and Victoria’s 3.7% rise demonstrate widespread pressure with notable regional differentiation.
Melbourne has emerged as a focal point for mortgage and personal loan stress according to recent analysis. The city experiences above-average unemployment relative to the national rate of 4.1%. Income growth remains below average compared to other capital cities. Housing market conditions are softer than Sydney and Brisbane. Recent increases in state taxation for investment properties have compounded these pressures.
Financial services providers including MeLoan report increased enquiries from borrowers in these regions. Many seek debt consolidation options and financial hardship assistance information.
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Converging Economic Factors Driving Delinquencies
Multiple economic pressures have created challenging conditions for loan serviceability:
Sustained Cost-of-Living Increases
Over the past two years, the cost of necessities like groceries and electricity has increased significantly. According to data from the Reserve Bank of Australia, household interest expenses as a proportion of income increased from 4.4% in March 2022 to almost 7% by late 2024.
Depleted Pandemic Savings
The $300 billion in excess household savings accumulated during lockdown periods has been progressively drawn down. Analysis from the RBA’s April 2025 Financial Stability Review notes this buffer has effectively been exhausted for many middle-income households.
Interest Rate Environment Impact
The RBA commenced rate reductions in February 2025 bringing the cash rate to 3.85%. However, personal loan borrowers experience limited direct benefit. Most personal loans utilise risk-based pricing methodologies tied to individual credit scores rather than tracking the official cash rate. Average rates remain at 13.87% per annum.
Seasonal Financial Pressures
The Q1 timing captures post-holiday budget strain. Many households extended spending for Christmas and summer holidays. They then confronted the financial reckoning in January and February when credit card and loan bills became due.
Banking Sector Response and Systemic Risk Assessment
While acknowledging worsening conditions, major Australian banks insist that overall risks to the financial system are still under control. According to Commonwealth Bank, for the fiscal year that ended in June 2024, housing loan defaults of 90 days or more accounted for 0.65% of portfolio value. This represented an increase of 18 basis points over the prior time frame.
Banks are still in a strong position to handle rising loan losses, according to the Reserve Bank’s April 2025 Financial Stability Review. Personal loans make up less than 5% of all credit given out. By doing this, systemic exposure is reduced even while borrower stress levels rise. Banks have improved early intervention programs and expanded the ability of their hardship teams to help struggling borrowers before arrears become serious.
Practical Strategies for Managing Loan Obligations
Early communication with lenders should be a priority for borrowers who are having trouble making their payments. Licensed lenders are required by the Australian Securities and Investments Commission to offer hardship assistance to qualified clients.
Immediate Intervention Options:
- Borrowers are able to fulfill their minimum responsibilities through temporary payment reductions.
- Interest-only terms that lower monthly obligations for predetermined durations
- Longer loan durations that disperse repayments across more time
- Payment deferrals can offer temporary respite during severe financial emergencies
Long-Term Financial Management:
- To find ways to cut discretionary spending, conduct thorough budget assessments.
- Create little emergency reserves, ranging from $500 to $1,000.
- Examine your alternatives for debt consolidation using programs like MeLoan to possibly lower total interest expenses.
- Regularly check your credit score with Equifax or other organisations.
Financial advisors stress that asking for help shows financial maturity rather than failure. These services offer judgment-free, private help. They assist debtors in negotiating with lenders and obtaining emergency assistance, among other complicated situations.
Forward Outlook for Personal Loan Markets
Forecasts indicate that delinquencies will continue to rise moderately until 2025. As RBA rate cuts permeate the economy, the trajectory can slow. The fall to 3.85% in February 2025 offers some financial respite for households. Throughout the year, more small cuts are expected.
For a few quarters, though, the market will probably continue to be difficult. Banks are now making more provisions for possible loan losses. This suggests that persistent pressure is expected by the institution. Strong bank capital positions, according to the RBA, keep wider financial system risks under control.
If wage growth picks up speed and inflation keeps declining, there may be a chance for market stabilisation around the middle to end of 2025. This view is still dependent on both domestic policy choices and the state of the world economy.
Conclusion
The 18.7% increase in delinquency levels is indicative of a substantial change in financial stress metrics throughout Australia. Regulatory bodies claim that systemic risks are still manageable, but individual borrowers experience real suffering that calls for aggressive assistance and intervention.
The best method to overcome the present economic difficulties is to be aware of the resources that are accessible and to communicate with lenders as soon as possible. The disparity between steady account numbers and skyrocketing delinquency rates emphasises how crucial tailored assistance programs are. Financial counseling services that are easily accessible are nonetheless crucial for Australian households navigating these extraordinary circumstances.
