Indonesia's Youth Debt Trap: How Instalment Shopping Turns Into Loans to Repay Loans

One Extra Zero, Four Lenders and a Crushing Bill

Ms Mawar, a 26-year-old administrative worker in Jakarta, meant to borrow 1.8 million rupiah through a peer-to-peer lending application in September 2025. An extra zero changed her request to 18 million rupiah. The money reached her account within minutes.

Mawar returned 10 million rupiah, but used some of the money to settle smaller outstanding instalments instead of immediately returning the full excess. By January, she faced a monthly payment of four million rupiah and total debts approaching 30 million rupiah across four lenders. Paying off some bills had left her carrying a much larger obligation.

Ms Indie, a 28-year-old healthcare worker, accumulated 50 million rupiah in debt, roughly ten times her monthly salary. She described how ordinary purchases had become a collection of payments she could no longer comfortably manage.

Every piece of clothing, from my head to my feet, I bought on instalments. I feel so stupid, because I did not think about the interest and fees accumulating.

Their experiences show how instalment shopping and fast online borrowing can feed each other. Buy now, pay later services, often shortened to BNPL, split a purchase into payments. Online peer-to-peer loans provide borrowed money through an application. In Indonesia, these loans are commonly called pinjol, short for the Indonesian phrase pinjaman online.

For borrowers already struggling with several payment deadlines, another loan can offer immediate relief while adding another bill. The danger becomes acute when new borrowing repeatedly pays for old borrowing, leaving wages to cover an expanding stack of obligations.

How Shopping Credit Becomes a Debt Treadmill

Major e-commerce platforms have made instalment payments familiar for everyday purchases, including cosmetics, clothing and electronics. Minimal documentation and instant approval make the services easy to access, and buying something today can feel more manageable when its price is divided into smaller amounts.

Borrowers who reach their BNPL limits or cannot meet an approaching payment deadline may turn to pinjol applications to fill the gap. The purchase debt then becomes part of a wider borrowing cycle. A loan settles the immediate bill, but the borrower must later repay that loan together with its interest and fees.

Peer-to-peer lending began as a way to widen access to finance. For millennials and Generation Z caught in this cycle, the same convenience can become a debt trap. The problem is especially difficult when borrowing supports repeated spending rather than bringing in money that can help repay it.

Mawar's decision to use part of her unexpectedly large loan to settle smaller instalments illustrates this pattern. Indie described a similar accumulation through clothing purchases. Each transaction could appear affordable on its own, while the combined commitments consumed far more of their income.

Growing Loans and Rising Repayment Trouble

The Financial Services Authority, known as OJK, put outstanding online peer-to-peer loans at 100.69 trillion rupiah in February, an increase of 25.75 per cent from a year earlier. The article's statistical recap dated that figure to February 2025. Outstanding loans are money borrowers still owe, rather than the value of new loans issued during a single month.

OJK's figures also showed the ratio of loans at least 90 days overdue rising to 4.54 per cent, from 2.78 per cent a year earlier. Known as TWP90, this measure tracks serious repayment delays. The increase was 1.76 percentage points, meaning repayment trouble was growing alongside the amount borrowed.

The rising overdue ratio points to substantial financial distress among borrowers. It also explains why expanding access to credit alone cannot tell the full story of the industry's growth: more money is being lent while a larger share is falling seriously behind on payment.

Indonesia has 94 lenders operating under official registration, while hundreds more operate without licences. Regulators therefore face two connected tasks: supervising businesses within the licensed system and pursuing operators outside it.

Millennials and Generation Z make up 86.6 per cent of online borrowers, according to surveys cited in the account. Their prominence places young adults at the centre of the repayment problem and of efforts to improve financial decision making.

Why Young Borrowers Are Vulnerable

Dr. Friderica Widyasari Dewi, OJK's Executive Head of Financial Services Business Conduct Supervision, identified spending choices as a major reason young people become trapped in online debt.

Many young people get trapped in online loans because they take on debt for consumptive needs and unwise expenses.

Fear Of Missing Out, or FOMO, can create anxiety about falling behind socially. A person may buy clothes, cosmetics or electronics to keep up with others, even when their income cannot comfortably support the purchase. You Only Live Once, or YOLO, can encourage immediate enjoyment at the expense of planning for later bills.

These pressures meet a gap in financial knowledge. Financial literacy among people aged 15 to 17 is just 43 per cent. Literacy means being able to understand financial products, weigh their costs and make informed choices, rather than simply being able to open an account or use an application.

Young borrowers can consequently gain access to credit before they have a firm understanding of how several instalments, interest charges and fees fit into a monthly budget. The convenience of approval makes the decision quick; the repayment consequences last much longer.

Fast Applications and the Pull of Money Today

Dr. Prani Sastiono, a researcher at the University of Indonesia's Institute of Economics and Social Research, explained the debt treadmill through present bias. This is the tendency to give more weight to an immediate benefit than to a cost that comes later.

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.

Borrowers may also be too confident about their future ability to repay. Together, these habits can lead them to underestimate the effect of accumulating interest and fees. Money arriving today feels concrete, while several future payments can seem distant and easier to handle.

Prani said application design strengthens that pull by making borrowing attractive and keeping the process simple.

The design is very attractive from a behavioural standpoint. The requirements are minimal and the information about the fees and the interest is not always entirely clear.

Most platforms require only a national identity card and a statement of income supplied by the applicant. Funds can arrive within minutes in a bank account or e-wallet. That speed reduces the time between wanting money and receiving it.

A daily interest rate can also look small when presented without a clear explanation of its longer cost. A rate advertised as 0.3 per cent per day compounds to more than 100 per cent annually. Compounding means interest builds on an amount that already includes earlier interest, so the debt grows faster than a borrower may expect from the small daily figure.

A Laundry Owner's Borrowing Spiral

Mr. Krisna Bagus, a 33-year-old laundry business owner in Salatiga, Central Java, encountered the same speed while trying to keep his business running. In 2023, cash flow problems put pressure on his seven outlets where customers dropped off laundry, but pride made him reluctant to close any of them.

Krisna said a bank loan offered a cheaper option, although obtaining it would have taken longer.

I could have applied for a bank loan, which would have charged lower interest, but the process would have taken time.

When he registered with a lending platform in March 2023, he found he could withdraw up to 16 million rupiah despite monthly earnings of only 12 million rupiah. He described how quickly the loan arrived.

It took less than a minute for the money to be sent to my account.

Krisna's obligations grew beyond 150 million rupiah within months. His experience shows that the borrowing cycle reaches beyond shopping: a business owner trying to protect income can also become overwhelmed when fast credit adds repayment costs to an existing cash shortage.

The main events in the borrowers' accounts span several years:

• March 2023: Krisna registered with a lending platform and gained access to as much as 16 million rupiah.
• Early 2024: Krisna stopped payments and began saving toward a negotiated settlement.
• End of 2024: Krisna said he had paid off all his lenders.
• September 2025: Mawar accidentally requested 18 million rupiah instead of 1.8 million rupiah.
• January: Mawar faced a monthly payment of four million rupiah, with debts approaching 30 million rupiah across four lenders.
• February: Cocoa, a freelance social media manager, stopped making payments after deciding she could no longer sustain them.

Borrowing Limits Meet Uneven Enforcement

OJK has tried to place limits around the industry. Since 2023, its phased schedule has set daily interest caps of 0.3 per cent for 2024, 0.2 per cent for 2025 and 0.1 per cent from 2026 onward.

The total cost of borrowing, including administrative fees and late payment penalties, cannot exceed 100 per cent of the principal. Principal means the original amount borrowed. Under that limit, the combined borrowing costs cannot be greater than the original loan itself, although the borrower must still repay that original amount.

Lenders are also prohibited from giving funds to a borrower already indebted to three other applications. The rule is intended to restrict the stacking of loans across platforms, a central feature of the debt treadmill.

Mr. Nailul Huda, director for digital economy at the Center of Economic and Law Studies, described an improvement in how rates are presented compared with the industry's earlier years.

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.

Since 2020, OJK has revoked at least 70 licences for violations that included failing to meet equity requirements and excessive default rates. Equity requirements concern the financial resources a lender must maintain to operate.

Enforcement remains inconsistent. All the borrowers interviewed for the investigation said they had simultaneous obligations to more than three lenders, despite the restriction. Several had active loans with more than a dozen platforms.

Prani warned that rules need strict and consistent enforcement. Otherwise, an individual lender faces pressure to overlook restrictions to avoid losing customers to competitors willing to lend more freely.

Illegal operators create another layer of danger. Their collection methods can include threats of physical violence and public shaming through messages to a borrower's contact list. Such practices are explicitly prohibited for registered lenders.

Default, Collection Pressure and Negotiated Repayment

Some borrowers deliberately stop paying when they can no longer manage their obligations. Online communities bring together people describing themselves as pinjol survivors or debt-free warriors, where they share experiences of collection pressure and attempts to recover.

Cocoa, a 31-year-old freelance social media manager, accumulated more than 100 million rupiah in debt across eight lenders. In February, she chose to stop making payments after concluding that she could not keep them going. She described the volume of calls that followed.

I had to put my phone on airplane mode because in 15 minutes, I could get up to 70 phone calls from debt collectors.

Cocoa's plan is to save enough to cover the principal, then negotiate restructuring agreements that remove accumulated interest and late fees. Restructuring means changing the repayment arrangement through an agreement with the lender.

Krisna followed a similar recovery approach. After stopping payments in early 2024, he saved enough to cover the principal and what he considered reasonable interest, then persuaded lenders to waive penalty charges. He said the process ended with all his debts settled.

I ended up paying them all off by the end of 2024.

Krisna now sells an e-book explaining his debt repayment strategy for 39,000 rupiah, including access to a WhatsApp support community. He explained his reason for sharing the experience.

I want to help because I know how bad it feels to be in so much debt.

Default also carries lasting consequences. Borrowers who fail to meet their obligations risk an adverse entry in OJK's Financial Information Service System, or SLIK, its central credit registry. A damaged repayment record can make future borrowing harder, including applications for a motor vehicle loan or a home mortgage. Cocoa's final settlement outcome was not given.

The Knowledge Gap Behind Indonesia's 2045 Ambition

Indonesia's National Long-Term Development Plan 2025-2045 sets out a Golden Indonesia ambition, with the younger generation expected to help move the country beyond the middle-income trap. That term describes difficulty advancing from a middle level of national income to a higher one.

Heavy debt among young adults threatens their ability to contribute to that goal. Money committed to old loans is money they cannot use for other needs or productive investment. The contrast between credit that supports income and credit that finances consumption runs through the borrowers' experiences.

Financial inclusion stands at 85.1 per cent, while financial literacy is 49.68 per cent, a gap of 35.42 percentage points. Inclusion concerns access to financial services; literacy concerns the knowledge needed to judge and use them. Access has moved much further ahead than understanding.

Educational institutions and regulators are beginning collaborative efforts to close that gap. Programmes for university students focus on practical financial planning and better decisions about money. Recommendations include keeping a systematic budget, separating needs from wants and understanding the contract before accepting a digital loan.

Financial independence, the goal behind these efforts, is described in the following terms:

Financial independence is obtained if we can live a decent and affluent life, free from financial problems that weigh on the mind.

Mawar, Indie, Cocoa and Krisna show different routes into the same pressure: instalment shopping, an unexpectedly large loan, repeated borrowing and an urgent business cash shortage. Their experiences place repayment capacity, transparent costs and enforcement alongside education in the effort to prevent another loan from becoming the only way to pay the last one.

Key Points

• OJK put outstanding online peer-to-peer lending at 100.69 trillion rupiah in February, up 25.75 per cent from a year earlier; the statistical recap dated the figure to February 2025.
• The share of loans at least 90 days overdue rose to 4.54 per cent from 2.78 per cent.
• Millennials and Generation Z account for 86.6 per cent of online borrowers, according to the cited surveys.
• Daily interest caps were scheduled at 0.3 per cent in 2024, 0.2 per cent in 2025 and 0.1 per cent from 2026 onward.
• Borrowing costs are capped at 100 per cent of principal, and lenders cannot give funds to someone already indebted to three other applications.
• Borrowers described holding loans across more platforms than the rules allow, while illegal operators use prohibited collection tactics.
• Negotiated settlements helped Krisna repay his debts, but default can damage a borrower's SLIK credit record.
• Financial inclusion of 85.1 per cent exceeds financial literacy of 49.68 per cent, leaving a substantial gap between access and understanding.