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SA Wonga CEO Kevin Hurwitz (Supplied)
Cape Town - Unlike the general perception that consumers take out personal loans to live beyond their means or to purchase materialistic items, many are using credit to pay for basic living costs or unexpected expenses, Kevin Hurwitz, CEO of Wonga.com South Africa, told Fin24.
“The rising cost of living in South Africa is making it increasingly difficult for consumers to be able to afford even some of the most basic essentials,” he said.
A survey among almost 20 000 Wonga SA customers found that 43% of respondents had used a loan to cover an unexpected expense, with 27% using a loan to buy goods that they couldn’t afford at the time.
Fin24 asked Hurwitz to explain more about the current situation.
How did the misconception start that consumers (mainly) take out personal loans to live beyond their means or buy material things?
There has long been a misperception that unsecured loans are used to drive consumption only, whereas secured loans assist or drive investment.
In otherwords there has been a misperception that unsecured, personal loans are "bad", whereas secured loans are "good".
This misperception has become even more apparent recently with the increasing accessibility of personal loans.
Towards the end of 2013, Wonga commissioned extensive economic research into the theory that unsecured lending was creating a credit bubble.
The key finding from this research was that there is a strong correlation between unsecured lending and GDP.
What are the actual reasons consumers mostly take out these short term loans and what is usually the amount and at which interest rate(s)?
Based on the results of this survey, we can see that most customers (70%) are taking loans to cover an unexpected expense.
Anecdotal evidence suggests that some of these unexpected expenses include a car breaking down, emergency medical bills and geysers bursting.
Only a very small percentage say they used the loan for a shopping deal (2%), a holiday (2%), fashion items (1%) or gadgets (1%).
At Wonga, the average loan size for new customers is approximately R1 400 and for returning customers it is approximately R1 900.
The interest rate is set at 5% per month, but is charged per day, not per month. Loans are for approximately 30 days or less.
What are the pitfalls to look out for when taking out a personal loan?
It is important that customers do their homework. At the very least they should do some basic research on the options available and about the lenders themselves when considering taking out a personal loan.
This is because not all lenders are responsible and registered with the National Credit Regulator.
It’s also a good idea to know exactly what the total cost to repay is, before accepting the terms of the loan.
Often the fees and charges are "hidden" by more unscrupulous lenders and (in these cases) this results in a nasty surprise when it comes to repaying the loan.
It is also good to be suspicious when asked to pay any fee upfront. This is often an indication that perhaps what is on offer is not legitimate - such as an advance-fee scam.
Most short term lenders do not require any fees to be paid up front.
How can consumers become more money savvy?
It is vital that consumers become more aware of their finances, rather than hoping they will make it through each month.
One way to start becoming more money-savvy is to open a savings account and to put any extra money left over each month, no matter how small, into that fund to prepare for a rainy day.
Saving for unexpected emergencies should also become a part of a monthly budget. Once a consumer creates a list of monthly income and monthly expences, it can be easy to see where certain luxuries can be done away with in order to build up monthly savings.
What can they do to get out of the debt pit once they are in it and still struggling to make ends meet?
When consumers are really struggling to make ends meet and they feel like they are drowning in debt, the worst thing to do is to hide away, hoping it will all go away.
It is far better to negotiate with the credit providers, explain the situation and arrange a repayment plan with them.
Most registered credit providers would far rather discuss and negotiate repayment terms where necessary with consumers, rather than be forced to go down the legal route.
- Fin24
* Struggling with debt? Help us help you by taking our second annual Debt survey and you could win R3 000, or add your voice by sharing your debt experiences, debt-busting tips and insights. Have a question? Ask our experts.
“The rising cost of living in South Africa is making it increasingly difficult for consumers to be able to afford even some of the most basic essentials,” he said.
A survey among almost 20 000 Wonga SA customers found that 43% of respondents had used a loan to cover an unexpected expense, with 27% using a loan to buy goods that they couldn’t afford at the time.
Fin24 asked Hurwitz to explain more about the current situation.
How did the misconception start that consumers (mainly) take out personal loans to live beyond their means or buy material things?
There has long been a misperception that unsecured loans are used to drive consumption only, whereas secured loans assist or drive investment.
In otherwords there has been a misperception that unsecured, personal loans are "bad", whereas secured loans are "good".
This misperception has become even more apparent recently with the increasing accessibility of personal loans.
Towards the end of 2013, Wonga commissioned extensive economic research into the theory that unsecured lending was creating a credit bubble.
The key finding from this research was that there is a strong correlation between unsecured lending and GDP.
What are the actual reasons consumers mostly take out these short term loans and what is usually the amount and at which interest rate(s)?
Based on the results of this survey, we can see that most customers (70%) are taking loans to cover an unexpected expense.
Anecdotal evidence suggests that some of these unexpected expenses include a car breaking down, emergency medical bills and geysers bursting.
Only a very small percentage say they used the loan for a shopping deal (2%), a holiday (2%), fashion items (1%) or gadgets (1%).
At Wonga, the average loan size for new customers is approximately R1 400 and for returning customers it is approximately R1 900.
The interest rate is set at 5% per month, but is charged per day, not per month. Loans are for approximately 30 days or less.
What are the pitfalls to look out for when taking out a personal loan?
It is important that customers do their homework. At the very least they should do some basic research on the options available and about the lenders themselves when considering taking out a personal loan.
This is because not all lenders are responsible and registered with the National Credit Regulator.
It’s also a good idea to know exactly what the total cost to repay is, before accepting the terms of the loan.
Often the fees and charges are "hidden" by more unscrupulous lenders and (in these cases) this results in a nasty surprise when it comes to repaying the loan.
It is also good to be suspicious when asked to pay any fee upfront. This is often an indication that perhaps what is on offer is not legitimate - such as an advance-fee scam.
Most short term lenders do not require any fees to be paid up front.
How can consumers become more money savvy?
It is vital that consumers become more aware of their finances, rather than hoping they will make it through each month.
One way to start becoming more money-savvy is to open a savings account and to put any extra money left over each month, no matter how small, into that fund to prepare for a rainy day.
Saving for unexpected emergencies should also become a part of a monthly budget. Once a consumer creates a list of monthly income and monthly expences, it can be easy to see where certain luxuries can be done away with in order to build up monthly savings.
What can they do to get out of the debt pit once they are in it and still struggling to make ends meet?
When consumers are really struggling to make ends meet and they feel like they are drowning in debt, the worst thing to do is to hide away, hoping it will all go away.
It is far better to negotiate with the credit providers, explain the situation and arrange a repayment plan with them.
Most registered credit providers would far rather discuss and negotiate repayment terms where necessary with consumers, rather than be forced to go down the legal route.
- Fin24
* Struggling with debt? Help us help you by taking our second annual Debt survey and you could win R3 000, or add your voice by sharing your debt experiences, debt-busting tips and insights. Have a question? Ask our experts.
