These are the bills South Africans are struggling to pay right now – including home loans, credits cards and car finance
Credit Bureau Experian has published its latest Consumer Default Index (CDI), showing the areas where South Africans are struggling to pay off existing loans and debts.
The CDI is designed to measure the rolling default behaviour of South African consumers with home loan, vehicle loan, personal loan, credit card and retail loan accounts.
The CDI for Q4 2020 shows that the rate that people defaulted on their loans fell at the end of last year, primarily due to a combination of the impact of payment holidays and lenders tightening their criteria.
“The number of first-time defaults was driven down by lenders introducing payment holidays, especially on never before delinquent accounts,” the group said.
“A significant reduction in the volume of new accounts opened since the onset of the Covid-19 pandemic has also had an impact, with most lenders tightening their lending criteria and new credit exposure.”
However, Jaco van Jaarsveldt, Chief Decision Analytics Officer at Experian Africa said that this decrease is not necessarily all good news.
“Despite the improvement in Q4, it should be noted that this is not as a result of an overall improvement in the financial performance of the average South African consumer.
“Levels of distress are expected to increase across all segments of the market as the effects of Covid-19 and a continuously deteriorating economy weigh on performance.”
“People should continue to manage their finances carefully to ensure that they can endure the uncertainty ahead, while lenders will need to use insights from data to make the best decisions on their customers.”
He added that from a year-on-year perspective, the CDI was still tracking higher at 4.07 in Dec 2020 than the 3.97 observed in December 2019. A higher score on the index means higher level of default.
Priorities
Experian’s data shows that the year-on-year deterioration can largely be attributed to the significant worsening in the vehicle loans, which deteriorated from 3.26 in December 2019 to 4.42 in December 2020.
Personal loans also saw a deterioration from 9.04 to 9.81 over the same time period.
“Payment holidays granted for home and vehicle loans were mostly effective between April and July 2020, after which most matured,” Experian said.
“Although the vehicle loans CDI deteriorated in Q4, the home loans CDI improved slightly from 1.61 in Dec 2019 to 1.42 in December 2020. This suggests people are prioritising paying their home loans before other commitments.”
“When looking at unsecured lending products, the personal loans index presented the biggest distress – deteriorating from 9.04 in December 2019 to 9.81 in December 2020 – as the effect of the Covid-19 pandemic continues to place pressure on many people who predominantly use personal loans for monthly expenses.”
Experian said that it observed the opposite trend when looking at credit cards and retail store accounts.
The positive performance of credit cards can be attributed to consumers prioritising paying their credit card debt as it most likely is their primary source of funds for daily expenses, it said.
“Retail store accounts, on the other hand, have shown steady improvement since before the Covid-19 pandemic struck. Lenders identified that people were already in distress due to the tough economic environment, subsequently tightening their credit granting criteria.
“The tightening of lending criteria, coupled with the Covid-19 lockdown, resulted in no lending – thus a continued steady improvement in the performance of the retail segment.”
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