Consumers now have to opt for payday loans to afford electricity and fuel and make provision for other inflationary pressures. In a recent survey, 53% of people who applied for debt counselling had these one-month loans.
Benay Sager, executive head of DebtBusters, says despite inflationary pressure somewhat subsiding, South Africans continue to use loans to make ends meet as inflation’s cumulative effect together with persistently high interest rates erode their income.
According to DebtBusters’ Debt Index for the second quarter, 82% of people who applied for debt counselling during the quarter had a personal loan and a further 53% had one-month loans. “These payday loans have become a lifeline for many households but are very expensive with interest rates often in excess of 25% per year.”
Inflation has eased but remains at the upper end of the central bank’s range and continues to constrain consumer finances, Sager says. “Since 2016, electricity tariffs increased by 2.35 times, the petrol price has doubled and the compounded impact of inflation is 46%, with all three indicators putting additional pressure on South Africans.”
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While there are indications that the interest rates may finally start to tick down, they have been consistently high for over a year. Although consumers are better able to deal with elevated but stable interest rates, they are still feeling the impact of the successive rate increases that started in November 2021, he says.
“When the interest rate increases began, people started to feel the increasing pressure of servicing asset-linked debt. The average interest rate for a bond went from 8.3% per year in the fourth quarter of 2020 to 12.3% in the second quarter of 2024.
“More alarmingly, the average interest rate for unsecured debt is now at an eight-year high of 26% per year.”
However, Sager says it is not all bad news. The median debt-to-annual-income ratio is stable and has been low for the last four quarters. While still high at 105%, it is much lower than levels seen in the past few years.
“We welcome this, as well as the fact that debt counselling enquiries are up by 18% and registrations for online debt-management tools has increased. It indicates more people are taking action to deal with debt.”
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The Q2 2024 Debt Index found that compared to the same period in 2016, people who applied for debt counselling:
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Other important findings in the Debt Index include:
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