Buy Now Pay Later Debt Trap

Almost a quarter of Jakarta’s 10.5 million residents owe money to online lending platforms, due in large part to ease of access, the Financial Services Authority (OJK) revealed recently, putting the nation’s capital among the top two regions with the highest personal debts.

Rising Debts - Around 2.3 million Jakartans owed a combined total of more than 10.3 trillion rupiah (RM3.2 billion) to various online lenders as of April this year. The figure is 410 billion rupiah (RM126.3 million) more than that recorded in April 2022.

Jakarta ranks second on the list of provinces with the greatest number of individual debtors, after West Java with 4.6 million active borrowers and personal debt totalling 13.5 trillion rupiah (RM4.2 billion).

Most borrower have been using the “buy now, pay later” facility on e-commerce platform Shopee and super app Gojek for some time, and pays between 300,000 rupiah (RM92.4) and 1.8 million rupiah (RM554.4) in instalments each month. Users uses the facility because it helps them keep track of theirer monthly spending on travel and online shopping, but admits that using it requires self-control to prevent impulsive buying.

Buy Now Pay Later - Various studies found that the pay later feature can cause impulse purchases among consumers, leading to overspending and defaulting on existing debts. Despite their convenience, online lending platforms can also be debt traps.

OJK data revealed that the average default rate in Jakarta for various online lending platforms reached 2.9 percent as of April, higher than 2.7 percent in March. The default rate in West Java for April was higher at 3.6 percent.

Online lending platforms have become one of the most complained-about businesses due to their high interest rates and aggressive debt collection. The problem is exacerbated by the fact that 76 percent of all online lending platforms operating in the country are illegal, unregistered with the OJK.