Middle-to-high-income South Africans have increasingly struggled to afford their debt and credit payments, especially home loans and vehicle finance obligations, according to credit rating company Experian.
Speaking on 702, Jaco van Jaarsveldt, head of commercial strategy and innovation at Experian, said the company has seen an increase in the number of citizens defaulting on their vehicle loans in the past 18 months.
At present, there is about R2.3 trillion of active credit in the market split across approximately 30 million people, and of this total value, R1.8 trillion is made up of home loans and vehicle finance.
“75% of that R1.8 trillion which is the home loans and vehicle finance component sits in the hands of 12% of the active credit population, and that’s where we started picking up the distress,” said Van Jaarsveldt.
These individuals are classified as “upper-income and more affluent consumers” who have easier access to credit products but are struggling to make their payments on time.
These financial pressures are attributed to the continually rising cost of living in the country as a result of high fuel prices, load-shedding, and elevated interest rates.
South Africans owe R498 billion in vehicle debt
Year on year, Experian’s latest Consumer Default Index (CDI) showed a significant 18% deterioration from 3.97 to 4.68, indicating that far more South Africans defaulted on their loans for the first time in Q4 2023 than in 2022.
“Although still highly substantial, this relative deterioration is not as severe as the 32% relative deterioration observed in 2023 Q3,” said Experian.
“The reduction in relative overall deterioration suggests that the momentum of deterioration is slowing down so that even though consumers are still finding it very challenging to honour debt commitments, the situation is not worsening at the same speed that was observed earlier in 2023.
Over the three months between October and December 2023, new default balances on vehicle loans specifically increased by R4.9 billion.
As a result, the average outstanding vehicle debt in the country now sits around R498 billion and occupies 25% of the total credit exposure in the market.
The largest drivers behind the deteriorating Vehicle Loan CDI were FAS Group 1 and FAS Group 2 individuals – which are classified as “Luxury Living” and “Aspirational Achievers” – defaulting on their loans more than usual, said Experian.
What kept it from rising as aggressively as the Composite CDI was, amongst others, a “significant improvement” in the vehicle loan default rate of FAS Group 3 individuals, which are classed as “Stable Spenders.”
However, this improvement wasn’t due to FAS Group 3 consumers being able to afford their vehicles more readily, but rather, it was related to these individuals no longer qualifying for credit products to the same extent they did previously, said Experian.
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