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What Did All Those Payment Holidays Cost Consumers?

Payment holidays were offered to around 1.6 million South Africans during the lockdown. These payment holidays helped short term but also helped grow credit providers’ debtors book by Billions of Rand.

When the announcement was finally made that South Africa too would be having a lockdown many credit users began to panic as they realised that they would not be able to work and earn as normal. When the lockdown was extended and businesses stayed closed for longer and longer many consumers were relieved that some banks were offering their clients payment holidays.

‘A payment holiday is where the bank allows you to skip some payments’

A payment holiday is where the bank allows you to skip some payments and doesn’t send their collections agents to chase you. However, when this is done,  the amount owed will grow because there is interest charged on your debt while you are not paying.

Debt Counsellors rather advised consumers to claim against credit life insurance on their accounts which, for most consumers, covers periods of time when they are unable to earn. This insurance provided great relief to many thousands of consumers and debt counselling clients. Others, however, who did not get similar advice from the banks themselves decided to make use of the payment holiday option.

‘the amount owed will grow because there is interest charged on your debt while you are not paying’

What most people don’t realise is that while 3 months seems like a short time and because the banks don’t seem too stressed about the missed payments it has a serious effect on their total debt and how much they will pay over time.

1.6 Million People

According to research by Debtbusters (a Debt Review practice) around 1.6 Million credit users took advantage of the bank’s payment holiday offerings. These consumers were thus able to rather use their available funds or perhaps more credit to pay for essentials like food, electricity and rent. At the same time what they owed to the banks grew over these months.

Research now suggests that the banks were able to gain another R20.7 Billion during April, May and June against those consumers who took these payment holidays. so, while they missed out on a lot of payments in the short term they will more than make up those losses over time.

‘the banks were able to gain another R20.7 Billion during April, May and June’

Benay Sager, DebtBusters’ chief operating officer, says that if South African credit users did take the 3 month payment break on their total debt it “will have increased what they owe by 4.2%“.

The DebtBusters team also did some research into their recent average client profile and then calculated how using a payment holiday would have effected such consumers if they had needed to take up such an offer. This helped them get an idea of what the average credit user in South Africa would look like. Their calculations showed some scary figures.  For typical debt users who took payment holidays on their:

  • bond repayments, the debt on their mortgage probably grew by over R14 000.
  • vehicle finance, it probably cost them an additional of R6 000.
  • personal loans it would add nearly R10 000 to their debt.

According to their calculations, people who took payment holidays on all three types of debts will typically have added a scary R30 000 on top of what they already owed before lockdown began. And that’s not counting the money that these consumers will have been spending during those 3 months on credit because of not earning at the same time.

The Benefit of Having a Debt Counsellor in Your Corner

Though these are figures based on the “average” consumer in debt and each person’s situation is different it shows how having the help fo a Debt Counsellor can help you avoid adding to your debt burden by making knee jerk, short term decisions.

Each month hundreds of thousands of consumers are benefiting from the debt review process. It assists them to cope with and plan for the unexpected (like a sudden lockdown). Consumers in debt review learn how to save towards annual expenses (like those extra costs when the kids go back to school or your car needs to be serviced) and how to keep their monthly budget in check. It also enables them to pay off their debt in a responsible and yet manageable way each month.

If you are experiencing debt stress then reach out to an NCR registered Debt Counsellor for sound financial advice and assistance.