The Debt Spiral Begins With a Single Click
Every piece of clothing, from her head to her feet, was purchased on installments. For Ms Indie, a 28-year-old healthcare worker in Jakarta, the convenience of buy now pay later services seemed harmless at first. The discounts offered by online marketplaces were irresistible, and the initial payments appeared manageable. Yet within two months, she had accumulated 50 million rupiah (approximately $3,700) in debt, equivalent to ten times her monthly salary, borrowing from multiple peer to peer lending applications to cover the original installments she could no longer afford. I feel so stupid, because I did not think about the interest and fees accumulating, she recalled.
Ms Indie’s story is not unique. Across Indonesia, millions of young professionals and students are finding themselves caught in what financial experts call a debt treadmill, borrowing from one digital lender to pay another until the compound interest and fees become insurmountable. According to the Financial Services Authority (OJK), outstanding loans from online peer to peer lending reached 100.69 trillion rupiah in February, marking a 25.75 percent increase from the previous year. The demographic most affected is unmistakable: millennials and Generation Z account for 86.6 percent of online borrowers, according to a 2025 survey by the Indonesian Internet Providers Association.
The path into debt often begins innocuously. Consider the case of Mawar, a 26-year-old administrative worker who started using buy now pay later services in 2024 to purchase small items like lipstick and makeup. Like many young Indonesians, she did not fully understand the interest charges involved. As her borrowing limits automatically increased, she purchased a five million rupiah laptop. When the payments began consuming large portions of her 2.5 million rupiah monthly salary, she turned to peer to peer lending apps for cash flow. In September 2025, she accidentally added an extra zero to a loan application, borrowing 18 million rupiah instead of 1.8 million. Rather than returning the full amount immediately, she used part of the funds to pay off earlier installments, returning only 10 million rupiah. By January, her monthly payment on that single loan had ballooned to four million rupiah, and she discovered she owed nearly 30 million rupiah spread across four different lenders.
The Psychology of Immediate Gratification
What drives educated young professionals to borrow ten times their monthly income for consumer goods? The answer lies at the intersection of behavioral psychology and digital design. Dr. Prani Sastiono, a researcher at the University of Indonesia’s Institute of Economics and Social Research, explained the behavioral mechanisms at play.
There is a dimension of present bias, where borrowers feel like the benefits of having the money today outweigh the debt that they accumulate and will have to pay back in the future.
Dr. Prani also identified an element of overconfidence among borrowers regarding their ability to repay. This psychological tendency is amplified by cultural forces unique to the digital generation. Dr. Friderica Widyasari Dewi, Executive Head of Financial Services Business Conduct Supervision, Education, and Consumer Protection at OJK, warned that millennials and Generation Z are particularly vulnerable due to lifestyle principles popularized on social media.
Many young people get trapped in online loans because they take on debt for consumptive needs and unwise expenses. They face financial issues due to the principles of You Only Live Once and Fear Of Missing Out.
The Fear Of Missing Out phenomenon causes individuals to feel left behind if they do not follow trends, while You Only Live Once encourages enjoying life to the fullest without regard for future consequences. These attitudes lead to poor decisions, including the failure to prepare emergency funds. Compounding this vulnerability is the habitual sharing of personal information on social media, which irresponsible parties can exploit using ID cards and home addresses uploaded carelessly online.
Designed for Debt
The lending applications themselves are engineered to exploit these psychological weaknesses. Dr. Prani noted that the design makes borrowing relatively frictionless, requiring only an identity card and a declaration of income. The requirements are minimal and the information about the fees and the interest is not always entirely clear. For example, 0.3 per cent interest rate per day looks small, but over a year that adds up to an interest rate of more than 100 per cent.
Mr. Krisna Bagus, a 33-year-old laundry business owner from Salatiga, Central Java, fell into this trap when cash flow issues threatened his seven drop-off outlets in 2023. Rather than close locations out of pride, he sought quick solutions.
I could have applied for a bank loan, which would have charged lower interest, but the process would have taken time. And every day when I came home from work, there was this big billboard advertising pinjol, so I thought, here is the solution.
When he registered for his first lending app in March 2023, he found he could withdraw up to 16 million rupiah despite monthly income of only 12 million rupiah. It took less than a minute for the money to be sent to his account. Within months, he had accumulated over 150 million rupiah in debt across multiple platforms.
The automated nature of these platforms exacerbates the problem. Borrowing limits extend automatically as users maintain payment schedules, encouraging progressively larger loans. In Mawar’s case, her limit automatically extended to over 20 million rupiah, nearly ten times her monthly income, before she accidentally requested the fateful 18 million rupiah loan.
Living in Default
As online lending continues to grow, default rates have surged. OJK announced in April that the ratio of loans at least 90 days past due, known as TWP90, had reached 4.54 percent in February, up from 2.78 percent the previous year. This has given rise to the galbay movement, derived from gagal bayar (failure to pay), where borrowers deliberately default as a form of resistance against predatory lending practices.
A 31-year-old freelance social media manager known only as Cocoa defaulted in February after accumulating over 100 million rupiah with eight lenders. She decided to focus on paying off smaller balances while stopping payments on larger loans.
At first I was worried about the debt collectors, but other people who went through it said it was not as scary as it seemed. I had to put my phone on airplane mode because in 15 minutes, I could get up to 70 phone calls from debt collectors.
The consequences of default extend far beyond harassment. Borrowers who fail to repay risk being blacklisted in OJK’s Financial Information Service System (SLIK), formerly known as BI Checking. This blacklist can block access to credit for decades, delaying mortgage approvals and even constraining job opportunities. Financial analysts warn that 70 percent of potential home loan applicants fail credit checks due to negative records in the SLIK system, often because of small arrears that have been overlooked.
This phenomenon has been described as civil death. Young people who enter the SLIK blacklist before age 30 may find themselves unable to secure formal employment, particularly in financial institutions, or obtain vehicle and housing loans well into middle age. By 2045, when Indonesia aims to achieve its Golden Indonesia vision, these borrowers may remain financially excluded despite having income, effectively dead to the formal financial system.
Regulation Versus Reality
OJK has instituted stricter regulations to curb predatory lending. In 2023, the authority established phased maximums on daily interest rates, capping them at 0.3 percent for 2024, 0.2 percent for 2025, and 0.1 percent for 2026 and beyond. The total cost of borrowing, including all interest, administrative fees, and late payment penalties, cannot exceed 100 percent of the principal amount. Lenders are also prohibited from disbursing loans to borrowers who already have outstanding loans with three lending apps. Since 2020, OJK has revoked at least 70 peer to peer lender licenses for various offenses.
Mr. Nailul Huda, director for digital economy at the Center of Economic and Law Studies, acknowledged that regulation has tightened since the industry’s boom began around 2016.
In the past, some apps would just say that their interest rates range from 0.6 per cent to 0.8 per cent, without mentioning that those were daily interest rates.
However, enforcement gaps persist. All six borrowers interviewed for this report had, at some point, owed money to more than three online lenders concurrently, with four holding loans from more than a dozen lenders simultaneously. This suggests that rules prohibiting lending to over-indebted borrowers are not consistently enforced. Additionally, hundreds of unlicensed illegal lenders operate outside OJK oversight, often employing aggressive collection tactics and data misuse.
From January to July 2024 alone, authorities received 9,596 complaints about illegal lending operations. These illegal platforms often exploit personal data, engage in harassment, and impose exorbitant fees that drive borrowers deeper into debt cycles. The ease of access combined with data vulnerability creates significant risks of fraud and cybercrime, including money laundering and unauthorized access to bank accounts.
A Regional Pattern
Indonesia’s crisis mirrors trends across Asia. In Malaysia, 53,000 citizens under 30 owed nearly RM 1.9 billion ($423 million) in debt as of late 2023, with 77.3 million buy now pay later transactions processed in 2023 alone. Malaysia’s Consumer Credit Bill 2025 aims to regulate these services by introducing a Consumer Credit Commission and requiring BNPL providers to report to credit agencies, creating consequences for reckless lending that Indonesia has yet to fully implement.
China faces a similar crisis, where the number of loans households could not afford to pay back nearly doubled between 2021 and 2024, driven by poor financial literacy, high youth unemployment, and stagnant wages. Factory workers, young professionals, and gig economy workers across the region are caught in cycles of debt, living in fear of default and calls from debt collectors.
The structural similarities suggest this is not merely a regulatory failure but a generational shift in how digital finance interfaces with youth consumption patterns. The demographic bonus that should drive Indonesia’s economic growth by 2045 risks becoming a burden if millions of young workers remain indebted and financially excluded.
Toward Financial Freedom
Breaking free from the debt treadmill requires both individual strategy and systemic reform. Mr. Krisna eventually cleared his 150 million rupiah debt by stopping payments in early 2024, saving the principal and interest amounts, then negotiating with lenders to waive late fees. He paid off all debts by the end of 2024.
His experience inspired him to help others. After two friends confided their own debt struggles in 2025, he began sharing his story on social media and wrote an electronic book detailing his debt clearance strategy, offering it for 39,000 rupiah with access to a WhatsApp community where members share tips on becoming debt free.
I want to help because I know how bad it feels to be in so much debt, he explained. I hope that it helps at least some people get out of debt faster.
On the policy front, experts advocate for ecosystem lending models where banks provide capital while fintech firms serve as technology partners, filtering borrowers according to bank criteria. This shifts credit risk away from vulnerable retail investors to institutions with proper oversight, while maintaining digital accessibility.
Ultimately, financial literacy remains the critical defense. The 2022 National Financial Literacy and Inclusion Survey recorded that only 43 percent of Indonesians aged 15-17 possess adequate financial literacy, far below the national average of 49.7 percent. Without understanding that loans must be repaid with interest, that daily rates compound into triple-digit annual percentages, and that digital convenience carries real costs, young Indonesians will continue to trade their future financial health for immediate gratification.
Key Points
- Outstanding online peer to peer lending in Indonesia reached 100.69 trillion rupiah in February, up 25.75 percent year on year
- Millennials and Generation Z comprise 86.6 percent of online borrowers, often using loans for consumptive rather than urgent needs
- Daily interest rates of 0.3 percent translate to annual rates exceeding 100 percent, though regulations mandate gradual reduction to 0.1 percent by 2026
- Default rates have risen to 4.54 percent (TWP90), with many young borrowers facing blacklisting in OJK’s SLIK system, effectively creating civil death
- Enforcement gaps allow borrowers to hold loans from more than a dozen lenders simultaneously, despite rules limiting lending to those with three or fewer existing loans
- Hundreds of illegal lenders operate outside regulatory oversight, contributing to cybercrime risks and aggressive collection practices
