More South Africans are turning to personal loans as financial lifelines, borrowing more to make it through the month despite the highest borrowing costs in over a decade, a survey has found.
The second-quarter DebtBusters debt index, a quarterly review of data drawn from debt counselling applications, released this week shows the average loan size has increased by 78% since 2016, with unsecured debt on average 26% higher than in 2016.
The data also shows consumers who take home more than R35,000 per month now have an alarming debt-to-income ratio of 189% — a record high — while consumer spending power has diminished by 38% over the past seven years.
The data shows 66% of net income goes towards paying debt and 95% of consumers who applied for debt counselling during the second quarter of 2023 had a personal loan. These ratios are the highest they have been since DebtBusters began analysing debt counselling applicants’ data in 2016.
The head of DebtBusters, Benay Sager, said given these alarming ratios it’s no wonder consumers are feeling more financially stressed.
Sager said that while the SA Reserve Bank did not increase interest rates in July following a better-than-expected inflation forecast, the effect of the 10 successive interest rate increases since November 2021 is filtering through the ecosystem.
“Despite high interest rates, inflation is the reason people are borrowing to make ends meet,” Sager said. “To understand the pressures consumers are facing, consider what has happened to just the prices of petrol and electricity since 2016. The petrol price has almost doubled and the cost of electricity has gone up by 90%.”
Successive interest rate hikes have increased the burden on people servicing asset-linked debt, with the average interest rate on a bond rising from 8.3% in the fourth quarter of 2020 to 12.2% in quarter two of 2023.
Sager said that during the second quarter there was an increase in consumers seeking assistance to restructure asset-linked debt so that assets are legally protected and cannot be repossessed.
He said DebtBusters’ annual Money Stress Tracker, one of the largest surveys about how financial stress affects other aspects of South Africans’ lives, found respondents who said they were stressed about money had increased from 70% in 2022 to 78% this year.
Of these, 94% said financial stress is affecting their home lives, 78% their work life and 77% believe it is affecting their health.
Sager said debt counselling is an effective way to help financially stressed consumers.
He said unsecured interest rates can be reduced by 90% from an average of 24.8%, allowing people to pay back expensive debt faster. Debt counselling can also provide peace of mind about assets being repossessed.
“The number of consumers successfully completing debt counselling has increased more than seven-fold since 2016. In the second quarter alone consumers who received their clearance certificates paid back over R450m worth of debt to creditors,” he said.
Sager said DebtBusters observed increasing levels of interest from consumers for online debt management — up by 99% over the past year.
“Younger consumers generally have less debt burden and have been taking advantage of online debt management tools to help manage their debt more pro-actively.”
Sager said these consumers are keen to learn how best to manage their debt and recognise that, if addressed early in their professional career, debt management can become part of daily life.
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