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Don’t Touch Loans & Pay Later Until You Know the Costs

  • 4 days ago
  • 8 min read

Easy access to credit via smartphone has reshaped the financial habits of Indonesia’s younger generation. With just an ID verification and a selfie, anyone can secure a loan limit within minutes. This convenience drives financial inclusion, but it also breeds a new pattern of dependency. Gen Z and Millennials are the groups most exposed to multiple credit instruments at once.


Indonesia’s Financial Services Authority (OJK) recorded outstanding peer-to-peer (P2P) lending—commonly known as pinjol or pindar—at Rp103.73 trillion as of May 2026, up 25.60% year-on-year, rising further to around Rp105.14 trillion in June 2026 [1][2]. Borrowers aged 19–34 continue to account for the largest share of bad debt, even as the industry’s aggregate 90-day default rate (TWP90) actually improved—falling from 4.62% (April 2026) to 4.42% (May 2026) and 4.26% (June 2026) [1][2].


A similar pattern is seen in Buy Now Pay Later (BNPL): outstanding balances reached Rp29.3 trillion as of April 2026, growing 37.29% year-on-year [3], with Millennials making up 48.27% and Gen Z 39.94% of total users [4].


buy now pay later (BNPL)
Image Source: staffingindustry.com

Two Most Popular Schemes of Debt: Pay Later & Digital Loans


BNPL, aka Pay Later, is a financing scheme integrated with shopping platforms, letting consumers buy now and pay in installments later. It is regulated under POJK No. 32 of 2025 on Buy Now Pay Later, and is generally provided by finance companies or banks licensed for consumer financing [5].


P2P Lending or digital loan (pinjol) operates differently: the platform matches funders (investors) with borrowers, rather than financing directly. It is regulated under POJK No. 10/POJK.05/2022 and SEOJK No. 19/SEOJK.06/2023 [6], which set a maximum funding cost cap and require a feasibility assessment before approval.


The key difference: BNPL sits within a more standardized consumer-financing framework, while P2P Lending carries higher risk exposure because it involves third-party funds. OJK warns that holding multiple BNPL accounts, or combining BNPL with pinjol, can significantly increase overall debt exposure [5].


Easy Access, Fragile Literacy


The combination of easy access and low financial readiness is the main driver behind young people’s entanglement in both instruments. Approval is fast, unsecured, and built directly into apps used every day.


Young people are financially vulnerable because of a lifestyle that prioritizes short-term pleasure over saving—a pattern reinforced by YOLO and FOMO culture [7]. The main reason for using digital loans is not emergency needs but installment shopping without a credit card [8]; pay later usage is dominated by trend-driven fashion and gadget purchases rather than productive needs.


The Often-Overlooked Costs of Loans


The most common misconception is assuming total installments can simply be calculated as “principal times interest rate”. In reality, interest must be assessed relative to the period and tenor, on top of additional fees calculated through complex methods.


Many digital loans and pay later platforms, as creditors, advertise only the interest rate to appear cheap and affordable—often quoting a daily or monthly rate, while typical loan tenors run 6–12 months or longer.


For example, someone borrows Rp10 million at a flat* rate of 2% for 12 months. They may assume the total repayment is just Rp10 million plus 2%, i.e., Rp200 thousand. In reality, the quoted flat rate is a monthly rate, so the total interest must be multiplied by 12, coming to Rp2.4 million.


On top of that, there are other costs borrowers should watch for, such as provision fees and service or administration fees.


A provision fee is charged by the lender to the borrower when the loan is approved. It is deducted once at disbursement, meaning the cash that actually lands in the borrower’s account is less than the full principal that must be repaid.


For example, someone borrowing Rp10 million with a 1.5% provision fee only receives Rp9.85 million in their account, but the principal used to calculate interest and administration fees remains the full Rp10 million.


Service or administration fees, meanwhile, are typically charged on every installment throughout the tenor alongside interest, and vary between platforms. The overall cost cap—covering interest, provision fees, and service or administration fees—is set at 0.1% per day for short-term consumer financing (<1 year). Combined with late-payment penalties, the total maximum a creditor may charge is capped at 100% of the loan principal.


*A flat rate is calculated on the original principal, which stays constant throughout the tenor even though the real outstanding balance keeps shrinking—widely used because the quoted rate looks lower. This differs from an effective rate, calculated on the remaining principal balance each period, which more accurately reflects the real cost.

Alternatives to Borrowing


Making cash purchases the norm eliminates every extra cost of credit—interest, admin fees, provisions, penalties, and the risk of a negative record in OJK's SLIK credit information system. This habit can be built through a sinking fund with a clear target, and by simulating repayment capacity—saving an amount equal to the installment before making the purchase.


As an alternative to borrowing, funds can also be allocated first into capital-market investment instruments—such as dividend-paying blue-chip stocks or mutual funds suited to one’s risk profile—before being used to meet a need. This approach reverses the direction of financial benefit: the individual earns additional returns from dividends or asset growth, instead of paying interest to a financing provider. Key caveats: the investment horizon must match the target need, dividends are never guaranteed, diversification is still necessary, and investment products must be officially registered with OJK.


Learning from Neighbors: Literacy, Unemployment, and Bad Debt Across Four ASEAN Countries


Young people’s entanglement in digital debt is not just about ease of access—it is also intertwined with financial literacy levels, labor market conditions, and how each authority responds through regulation. The comparison below between Indonesia, Singapore, Malaysia, and Vietnam shows how these factors interconnect.


The following table compares financial literacy, unemployment, and non-performing loans in the Southeast Asian region [5–6, 9–25].

Indicator

Indonesia

Singapore

Malaysia

Vietnam

Financial literacy index

66.46% (SNLIK 2025, OJK–BPS)

55.2% of adults say they are not yet financially literate; digital financial literacy among youth (18–35) is below the OECD threshold (score <70)

MYFLIC Index 59.1 out of 100 (2024), up from 57.1 in 2018

Only ~36% of the population understands basic financial concepts; ~70% of young people say they never learned finance at school

General unemploymen rate

4.65% (May 2026), down from 4.68% (Feb 2026)

2.0% (Q2 2026), stable for 5 consecutive quarters

2.9% (Feb 2026) — lowest since November 2014

~2.2% (Q4 2025, latest available data)

Youth unemploymen rate (15–24)

16.36% (February 2026) — highest among all age groups, up from the prior year

No dedicated 2026 quarterly release for youth yet; last annual figure 6.78% (2025)

10.1–10.2% (Jan–Feb 2026) — significant improvement from 12.49% (2023)

9.04% (Q4 2025) — highest since records began in 2014

Youth-related non-performing loans

Aggregate P2P lending TWP90 (90-day default rate) at 4.26% (June 2026), improving from 4.42% (May) and 4.62% (April); however, borrowers aged 19–34 still account for the largest share of bad debt

Not yet published separately; exposure managed via a dedicated private credit bureau for BNPL

~53,000 young debtors (<30 years) recorded owing RM1.9 billion (approx. Rp6.7 trillion); 65% of AKPK debt-counselling clients are aged 28–30

Overall banking NPL 1.8–2.25% (2024–2025); unsecured consumer credit segment considered higher risk

Key regulation

POJK 32/2025 (BNPL); POJK 10/2022 & SEOJK 19/2023 (P2P Lending)

BNPL Code of Conduct — industry self-regulation since October 2022 under MAS guidance, not statutory law

Consumer Credit Act 2025, effective 1 March 2026, overseen by the Consumer Credit Commission

No BNPL-specific law yet; a formal framework is expected to be finalized in 2025–2026 under the State Bank of Vietnam (SBV)


Financial Literacy Doesn’t Always Track Regulatory Maturity


The data above reveals an interesting pattern: Indonesia actually posts the highest nominal financial literacy index (66.46%) among the four countries, yet still faces a high share of bad digital loan debt among young borrowers. This suggests that formal financial literacy—the ability to understand basic financial concepts—does not always translate into healthy borrowing behavior, especially when app-based access moves faster than young people’s readiness to manage cash flow.


By contrast, Singapore, with the lowest youth unemployment (6.78%) and digital financial literacy reported to be below OECD standards [15], has pursued risk mitigation through structural limits on the financial-service-provider side (accumulation caps, mandatory credit bureau checks), rather than relying solely on literacy education.


Correlation Between Youth Unemployment and Consumer Credit Pressure


Indonesia and Vietnam both record youth unemployment far above their national averages—16.36% and 9.04% respectively, versus general averages of 4.65% and 2.2% [19, 23]. This gap aligns with heavier consumption pressure on working-age groups not yet fully absorbed into the formal labor market, so income gaps are often plugged with instant credit rather than savings.


Malaysia shows a similar pattern via data from the Credit Counselling and Debt Management Agency (AKPK): around 53,000 young debtors under 30 are recorded owing RM 1.9 billion, with 65% of debt-counselling clients aged 28–30 [22]. Notably, Malaysia’s youth unemployment has actually improved sharply to 10.1–10.2% in early 2026 [24], suggesting that debt pressure among young Malaysians is not driven by unemployment alone, but also by consumption patterns and easy credit access even among the employed.


Regulation: From Industry Codes of Conduct to Formal Law


These four countries sit at different points in the maturity of BNPL and digital loans regulation. Indonesia was relatively early in setting a formal cost cap through POJK 32/2025 (0.1% per day cap and a 100%-of-principal ceiling). Singapore has taken the industry self-regulation route under MAS guidance since 2022, with a cumulative limit of S$ 2,000 per provider before further credit assessment is required [9]. Malaysia has just moved from a formal regulatory vacuum to the Consumer Credit Act 2025, which mandates licensing and creditworthiness checks starting in 2026 [10, 11]. Vietnam is at the earliest stage, still relying on a broader fintech framework while awaiting BNPL-specific regulation from the SBV [12].


These differences in regulatory maturity matter because none of the four countries has yet implemented a complete combination of literacy education, cost caps, strict credit scoring, and cross-platform limits simultaneously—showing that youth consumer debt is still a shared homework assignment across ASEAN, not just a domestic Indonesian issue.


Industry Opportunity, Individual Challenge


The growth of various digital credit instruments reflects two sides of the same coin. For the financial services industry, this trend opens up an ever-expanding consumer financing business. But for individuals—especially young people—that same convenience can become a trap if not matched by a full understanding of credit cost structures and the discipline to manage repayment capacity.


The question now is no longer whether young people will keep using digital credit instruments, but whether they can fully understand the cost structure before signing on the dotted line.


References


[4] Generasi Milenial dan Gen Z Dominasi Utang Paylater Mencapai Rp29,59 Triliun, https://www.tempo.co/ekonomi/generasi-milenial-dan-gen-z-dominasi-utang-paylater-mencapai-rp-29-59-triliun-1643128

[11] Malaysia – Consumer Credit Act 2025, https://conventuslaw.com/report/malaysia-consumer-credit-act-2025/

[15] Malaysia National Strategy for Financial Literacy 2026–2030, https://www.fenetwork.my/wp-content/uploads/2025/10/FEN_NS2_ENG_Interactive_FA_LowRes.pdf

[16] Financial Literacy, Attitude, and Behavior: Vietnamese High School Students, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5598771

[17] Indonesia's Labour Market Strengthens, But Youth Unemployment and Gender Pay Gaps Persist, https://hr.asia/asean/indonesias-labour-market-strengthens-but-youth-unemployment-and-gender-pay-gaps-persist/

[18] Unemployment Rates in Southeast Asia, 2025, https://seasia.co/infographic/unemployment-rates-in-southeast-asia-2025

[20] Youth Unemployment Rate for Singapore, World Bank/FRED, https://fred.stlouisfed.org/series/SLUEM1524ZSSGP

[21] Malaysia Youth Unemployment Rate 1991–2025, Macrotrends, https://www.macrotrends.net/global-metrics/countries/mys/myanmar/youth-unemployment-rate

[24] Malaysia Jobless Rate Steady at 2.9% / Youth Unemployment 10.1–10.2%, Trading Economics, https://tradingeconomics.com/malaysia/unemployment-rate/news/540816


Disclaimer: This content is created for educational purposes or service promotion, and does not constitute a recommendation to buy or sell any specific Securities. Any risks arising from investment decisions made based on the information in this publication are the sole responsibility of the respective audience. The data was sourced from various sources. PT KAF Sekuritas Indonesia is licensed and supervised by the Financial Services Authority (Otoritas Jasa Keuangan / OJK).

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