Reading Time: 3 minutes

Desperate Consumer Turn To Short Term Credit

According to the NCR’s Credit Bureau Monitor, which tracks consumer credit use, there has been a massive spike in personal loans over the last 12 months.

The recent stats show that personal loans granted have now jumped by nearly 67 percent in just one year.

This sharp rise in unsecured lending, which is mostly being used by consumer to cover everyday living costs, shows that many South Africans are under real financial pressure. The Credit Bureau Monitor also shows that while some people are managing to pay their debts, credit use is growing considerably faster than any improvement in repayment habits.

Those who have been paying are still managing to do so but millions are far behind on payments and struggling to meet their obligations.

Credit Use Hitting Record Highs

The total amount of credit granted went from R61 billion to over R80 billion in just twelve months.

That is a massive increase.

Obviously, South Africa’s many banks are once again willing to take on a lot more risk and feel that consumers will make their repayments.

Personal loans are often the most expensive type of credit and make the banks the most amount of return on their risk. These have been the biggest part of the spike in unsecured credit granted.

‘Personal loans are often the most expensive type of credit and make the banks the most’

Recently, one of the largest debt counselling practices in South Africa reported that most of their new client applications are from people who have only recently taken on a short term loan, in many cases a payday loan.

The sudden boom in unsecured credit unfortunately seems to be linked to people needing to borrow to make ends meet (not to invest in their future). The current cost of living crisis is starting to manifest itself as people struggle to keep up with the high cost of groceries, transport and other basics.

Though inflation has slowed the prices remain high and do not look likely to drop.

Millions Falling Behind

Sadly, the Credit Bureau Monitor shows that more than 8.5 million people have what are described as impaired credit records.

That means they are behind on payments or have been listed for defaults or judgments. Compared to the much smaller number of people who are currently in debt review (around 250 000) it shows that many more consumers could take advantage of the debt counselling process to deal with their existing debts.  

Debt counsellors report a slight slowing in applications and many are frustrated that they are not able to find consumers who are willing to make use of the process to deal with their debt. Instead, consumers tend to run out and try access more credit (which is really just more debt).

The surge in borrowing, combined with so many people who are already in trouble, paints a clear and somewhat scary picture. South Africans are doing what they can to cope, but for many, that has meant turning to credit to make ends meet.