The most recent Eighty20/XDS Credit Stress Report, which reflects the state of consumer debt in South Africa to the end of the 2nd quarter, 2021, notes an alarming 32% increase in overdue payments on vehicle asset finance over the 12 months to the end of June, with a 17% quarter-on-quarter increase.
Vehicle asset finance, the debt people have on their cars, accounts for just below a quarter of South African consumers’ R2 trillion worth of debt, according to the report. Half of the R2-trn debt mountain is mortgages, and the remaining quarter is made up of personal debt such as credit cards, personal loans and store accounts
“South Africans households are clearly under pressure due the consequences of Covid-19, with many having lost their jobs or seeing a reduction of income. This continued stress placed on household income means many have had to make some difficult decisions,” says Neil Roets, chief executive of debt counselling firm Debt Rescue.
“The Credit Stress Report indicates consumers have their backs against the wall, and when faced with the threat of eviction or foreclosure on their home loan, they are rather opting to not pay back their vehicle loan.”
Car owners also appear to be having problems paying their car insurance premiums. The recent TransUnion Consumer Pulse Study Q2 2021 indicates that 13% of consumers cannot cover their auto insurance, a concerning figure especially considering the consequences this might hold. In fact, the same survey notes that 25% of consumers are not able to pay their vehicle loans.
Fuel prices are adding to car owners’ woes. “There was also a massive fuel hike in August, which has seen petrol prices rise by 23.5% since the start of 2021. The knock-on effect of the fuel price hike puts additional strain on everyday costs such as consumer goods,” says Roets.
For many consumers, the only way out seems to be to actively seek out more credit, either through mashonisa loans or personal loans. This is the worst option for debt-burdened consumers, because it only worsens the situation, and can result in a debt spiral.
“The TransUnion Study indicates that 37% of consumers cannot pay off their personal loans, and a significant 44% unable to service their mashonisa loan. The resulting debt spiral can impact not only consumers’ current loans but also their future ability to borrow money,” says Roets.
Over-extended vehicle owners struggling with repayments have another option: by seeking professional help from a debt counsellor and going under debt review, it’s possible to prevent being blacklisted or being the subject of legal action. “Debt counsellors can negotiate with creditors on behalf of clients in order to obtain a longer repayment period with smaller repayments without losing assets such as motor vehicles,” Roets says. “Unfortunately, many consumers are not aware of the debt review option, believing that there is no way out of their current predicament.
“While undergoing debt counselling, consumers are protected against legal action from credit providers. And for vehicle owners, this can mean protecting your valuable asset from being confiscated,” Roets says.