Credit warning for South African consumers

The National Credit Regulator (NCR) has revealed alarming trends in consumer credit behaviour, with a record number of South Africans applying for loans and struggling to keep up with repayments.
Data from the third quarter of 2024 shows that 18.1 million people applied for credit, a 3% increase from the previous quarter and nearly 50% higher than the figures recorded at the end of 2021.
This surge in loan applications coincides with a rise in consumer loan arrears, particularly in mortgages, where arrears have climbed to 6.9%.
South Africa’s Credit Stress Report for Q3 2024, for example, highlights growing reliance on credit.
In particular, the report by Eighty20/XDS warns of a notably increased dependence on high-interest unsecured credit among individuals looking to cope with financial strain.
Bongani Gwexe, Supervisor of the Statistics and Research Department at the NCR, said in an interview with Newzroom Afrika that “the biggest issue we have seen over recent quarters is that consumers are under serious financial pressure.”
“Many households are facing significant financial challenges,” he added.
The accessibility of credit through digital platforms has also played a role in the increased number of loan applications.
Gwexe explained that before COVID-19, fewer people were using mobile phones or apps to apply for credit as they would predominantly go to branches.
“But now, especially after COVID, many people are applying from home. They’re applying to multiple institutions in an attempt to secure credit,” said Gwexe.
Despite the surge in applications, the NCR emphasises that the majority of credit providers are adhering to affordability regulations.
Out of the 18 million credit applications, 67.6% were rejected, indicating that lenders are scrutinising applications and ensuring that borrowers meet the necessary criteria.
“This shows that the credit industry is not reckless and is adhering to guidelines set by the National Credit Regulator,” said Gwexe.
“As the credit regulator, our goal is to ensure that consumers only receive credit that they can afford and repay on time, not just for the sake of taking on debt.”
Gwexe also highlighted the importance of consumer honesty during the loan application process.
“We also advise consumers to be honest when taking out loans and to declare all their expenses.”
“If you hide some expenses during the application process and later find yourself unable to repay, the credit provider cannot be held liable,” said Gwexe.
He emphasised the need for transparency, as it would be clear if a consumer misrepresented their financial situation.
Honesty is crucial, as everything is traceable online.
Gwexe said that NCR is actively addressing the rise in cyber security issues related to fake lenders.
“Consumers need to ensure that any credit provider they engage with is registered with the National Credit Regulator,” said Gwexe.
“They should always check the provider’s registration number and confirm it with the NCR before proceeding,” he added.
Additionally, the NCR cautioned against responding to unsolicited online credit offers, particularly from unfamiliar sources.
Overall, the NCR’s data serves as a stark reminder of the financial challenges faced by many South African consumers.
The combination of rising living costs, easy access to credit, and the proliferation of fraudulent lending schemes necessitate a cautious approach to borrowing and a commitment to financial responsibility.