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Cape Town - The latest data released by the National Credit Regulator (NCR) is deeply troubling for the South African consumer and the economy in general, according to Ian Wason, CEO of DebtBusters.
"There seems to be no sign of a reversal of the average consumer’s finances, with more and more South Africans falling into arrears on their accounts,” he said.
In SA there are 20.21 million credit active consumers of which 9.69 million have impaired credit records and 37.59% of unsecured credit accounts are out of date and in arrears.
The growth of unsecured credit slowed by 2.34% quarter-on-quarter, but the industry still granted R22bn in the quarter, accounting for 20.13% of the total credit granted.
There has been a 124.77% year-on-year increase on the amount of unsecured credit granted for less than or equal to six months.
Debt owed to other credit providers - in other words not banks - has increased by 70% year-on-year.
"Consumer credit health continues to be a prominent issue in South Africa and it is evident that consumers are still under financial pressure, as the number of credit-active consumers with impaired credit records, meaning they are three months or more in arrears, continues to rise." said Wason.
There has been a drastic quarter-on-quarter jump from 9.53 million to 9.69 million.
"Signs of financial recovery are nowhere to be seen, as performance of consumer accounts drastically deteriorated as the number of impaired consumer accounts increased from 18.31 million to 18.87 million in comparison to the previous quarter," he said.
"South African’s are increasingly taking out pay day loans to service their debt and current expenses."
In the second quarter ended in June 2013, 78% of the total unsecured credit granted (R17.3bn) was for personal loans larger than R15 000.
"This clearly shows the trend toward consumers taking out larger personal loans," he said.
Avoiding the debt trap
"Improved consumer awareness and education around responsible borrowing is key to reducing the number of debt impaired credit active consumers in South Africa, according to Kevin Hurwitz, CEO of Wonga.com.
While acknowledges that most of the unscrupulous lenders are not registered with the NCR, and so avoid regulation, there are also steps that potential borrowers can take to avoid falling into the debt trap.
Use a registered and reputable lender
South Africans applying for a loan should only make use of the services of a reputable lender who is registered with the National Credit Regulator (NCR).
While it may be easier to secure a loan from a disreputable lender, especially if the consumer has a bad credit record, the lender is then free to charge whatever fees it likes, or to hold onto personal items belonging to the borrower such as an ID document or ATM card – neither of which is allowed under the NCA.
Understand the terms and conditions of the loan
There are two key elements borrowers need to understand: when the loan must be repaid and; the consequences of failing to repay the loan by the agreed date.
In addition credit life insurance is often added to the charges, which consumers may not even be aware of before they agree to the terms.
In most cases, loans will continue to incur service fees and interest until the full amount is repaid.
Consumers must ensure they can afford to repay the loan – before they take it
Consumers must calculate exactly how much they can afford to borrow so that they can repay the entire loan (including fees and interest) within the agreed period.
A common mistake people make when assessing their ability to repay a loan is failing to take into account the additional cost of interest and fees charged.
- Fin24
"There seems to be no sign of a reversal of the average consumer’s finances, with more and more South Africans falling into arrears on their accounts,” he said.
In SA there are 20.21 million credit active consumers of which 9.69 million have impaired credit records and 37.59% of unsecured credit accounts are out of date and in arrears.
The growth of unsecured credit slowed by 2.34% quarter-on-quarter, but the industry still granted R22bn in the quarter, accounting for 20.13% of the total credit granted.
There has been a 124.77% year-on-year increase on the amount of unsecured credit granted for less than or equal to six months.
Debt owed to other credit providers - in other words not banks - has increased by 70% year-on-year.
"Consumer credit health continues to be a prominent issue in South Africa and it is evident that consumers are still under financial pressure, as the number of credit-active consumers with impaired credit records, meaning they are three months or more in arrears, continues to rise." said Wason.
There has been a drastic quarter-on-quarter jump from 9.53 million to 9.69 million.
"Signs of financial recovery are nowhere to be seen, as performance of consumer accounts drastically deteriorated as the number of impaired consumer accounts increased from 18.31 million to 18.87 million in comparison to the previous quarter," he said.
"South African’s are increasingly taking out pay day loans to service their debt and current expenses."
In the second quarter ended in June 2013, 78% of the total unsecured credit granted (R17.3bn) was for personal loans larger than R15 000.
"This clearly shows the trend toward consumers taking out larger personal loans," he said.
Avoiding the debt trap
"Improved consumer awareness and education around responsible borrowing is key to reducing the number of debt impaired credit active consumers in South Africa, according to Kevin Hurwitz, CEO of Wonga.com.
While acknowledges that most of the unscrupulous lenders are not registered with the NCR, and so avoid regulation, there are also steps that potential borrowers can take to avoid falling into the debt trap.
Use a registered and reputable lender
South Africans applying for a loan should only make use of the services of a reputable lender who is registered with the National Credit Regulator (NCR).
While it may be easier to secure a loan from a disreputable lender, especially if the consumer has a bad credit record, the lender is then free to charge whatever fees it likes, or to hold onto personal items belonging to the borrower such as an ID document or ATM card – neither of which is allowed under the NCA.
Understand the terms and conditions of the loan
There are two key elements borrowers need to understand: when the loan must be repaid and; the consequences of failing to repay the loan by the agreed date.
In addition credit life insurance is often added to the charges, which consumers may not even be aware of before they agree to the terms.
In most cases, loans will continue to incur service fees and interest until the full amount is repaid.
Consumers must ensure they can afford to repay the loan – before they take it
Consumers must calculate exactly how much they can afford to borrow so that they can repay the entire loan (including fees and interest) within the agreed period.
A common mistake people make when assessing their ability to repay a loan is failing to take into account the additional cost of interest and fees charged.
- Fin24
