Big rise in South Africans turning to credit as high fuel prices and cost of living bites

Financiers have seen an almost 20% rise in applications for credit over the past year, as South Africans feel the pinch from a struggling economy and rising prices – turning to lenders to help make ends meet.

This is according to the findings from the latest Consumer Credit Market Report from the National Credit Regulator, covering data to the end of June 2018 (the 2nd quarter report).

The group’s data shows that there was a 6% quarter on quarter increase in the number of applications for credit by South Africans, with just under 11.1 million received in the three month period – 18% higher than in the same period in 2017.

However, of these applications, only half were approved by banks.

More telling, however, are the types of credit being applied for. According to the NCR, the types of credit that have seen the biggest increase – both quarter-on-quarter and year-on-year – are short-term and unsecured credit, as well as credit facilities.

These are the types of credit that consumers often turn to, to cover immediate or unforeseen costs. They are also the types of credit that often carry high interest rates, that land debtors in trouble.

Unsecured loans saw the biggest increases, climbing 12% quarter-on-quarter, and 30% year-on-year. Short term credit also saw a sizeable jump (11% and 16%, respectively). New credit facilities increased by 11.4% quarter-on-quarter, and 21.6% year-on-year.

This is in stark contrast to secured credit, which saw a marginal increase of 0.2% quarter-on-quarter (6.1% year on year). However, mortgages saw a big boost in the second quarter, climbing 13.5% – 9.1% year-on-year.

In monetary terms, consumer debt grew by R20.21 billion in the second quarter – again with unsecured credit seeing the biggest rise, up 3.5%, adding R6.0 billion to total R178.6 billion.

According to the NCR, unsecured credit granted for agreements in excess of R15,000 dominated both in rand values and numbers at 89.10% and 49.62% respectively for the quarter ended June 2018.

Total consumer debt now totals just under R1.8 trillion.

Struggling to keep up

The NCR report aligns with the findings of the South African Reserve Bank’s (SARB) quarterly bulletin that was released at the end of September, which showed that households were coming under strain and turning to debt to keep up with the rising cost of living.

The increased VAT from 14% to 15% in April 2018, combined with the fuel price hikes, have placed even more pressure on SA households, who have already been turning more to credit just to keep up.

Ian Wason, CEO of debt management company, Intelligent Debt Management (IDM) said that the group has seen an increased trend of consumers who already have an average of seven credit agreements, seeking a consolidation solution so that they can free up cash-flow to keep up with the increased living expenses.

Manager for debt Counselling at the National Credit Regulator’s (NCR), Kedilatile Legodi acknowledged that they too are experiencing many consumers who are unable to pay their monthly debt repayments due to the current recession and the change it causes in consumers’ personal circumstances.

“Consumers in this situation should not hide, feel despondent or despair, they should use the debt relief measure offered by registered debt counsellors,” Legodi said.

Read: Spike in South African households seeking help – as they turn to debt to manage daily expenses

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Big rise in South Africans turning to credit as high fuel prices and cost of living bites