Cape Town – Debt counsellors are seeing a sharp increase in the use of payday loans among South Africans in the 25-39 age group.
Personal loans make up the biggest portion of the debt type for all ages, except the over-65s, according to statistics from Debt Rescue. The over-65s have more credit card debt than personal loans. In total, Debt Rescue clients owe 39% on personal loans, 23% on store cards, 22% on credit cards, 8% on vehicle finance, 6% on overdrafts and 2% on home loans.
Personal loans can include loans from banks or from legal lenders, and can include so-called payday loans. Debt counsellors deal with clients who owe money to legal lenders, so statistics of loans from loan sharks or illegal payday loan operators are not available. No doubt, they would make for terrifying reading.
Payday loans, although a relatively new concept when compared to car finance or home loans, now make up 67% of the volume of credit agreements in the 25-39 age group among the clients of DebtBusters and Consumer Debt Help (IDM group).
What is a payday loan?
A payday loan is repayable within 30 days. Many people take out such a loan to pay for basic necessities if they run out of money before the end of the month.
Of those between the ages of 40 and 59, only 26% had payday loans, and among the under-25s, only 6%. Among the over-60s, only 1% of clients had a payday loan.
Unemployment statistics are at their highest in the under-25 age group. In order to take out a payday loan, you need a job and a salary slip, which partially explains the relatively low take-up of this type of loan in that age group.
Over 2 000 IDM clients have payday loans and numbers have grown significantly over the years, according to the Debtometer. The dramatic shift towards payday loans has an impact on other existing loan agreements, particularly secured loans. Thirty-five percent of people with payday loans also have vehicle finance, 94% have one or more personal loan, 79% have credit card accounts and only 17% have home loans.
The value of payday loans is usually small, but the interest can be very high. The number of smaller providers of payday loans has been reduced, and some banks have now entered this market.
Lower-income earners buckle under debt
Clients who signed up with DebtBusters in the last quarter of 2015 needed 102% of their net income on average to pay their debts. The lowest income group (under R5 000 per month) was the worst off, as they needed 146% of their net income to pay their monthly debts. Those who earned more than R20 000 weren’t much better off – they needed 97% of their monthly net income to make their debt repayments.
In rand terms, those in the lowest income bracket owed less money than those in the highest income bracket, even though percentage-wise they had to pay the highest share of their income to service the debt. Unsecured debt makes up 80% of total debt for clients who earn less than R5 000 per month.
Overall, debt levels (debt exposure to income ratio) of clients have gone up from 112% in the fourth quarter of 2012 to 121% in the fourth quarter of 2015.
It must be remembered however that this Debtometer is not a snapshot of South Africans in general, but only of those who have opted to sign up with debt counselling firms such as Debt Rescue, IDM and DebtBusters.