Some of SA’s rich are under pressure – bad debt soars among top 2% credit users

  • New data from the credit reports group Experian shows a sharp increase in bad debts among the richest 2.5% of credit users in South Africa.
  • Their total new defaults reached R4 billion in the last three months of 2020.
  • Across all income groups in South Africa, personal and auto loan repayments have been hit the hardest during the pandemic.
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Some of South Africa’s top-flight households are struggling to pay their bills, according to the latest report from credit registration company Experian.

In the three months leading up to the end of December, the richest 2.5% of the credit workforce in South Africa saw a total of new defaults on debt repayments of over $ 4 billion. of rand. A default occurs either when a debt has been unpaid for 90 days or more – or when the lender has written off the debt, or has begun to repossess or seize the asset. Members of this group typically have an average starting mortgage of over R12 million and take out car loans of over R450,000. Together, these wealthy households have an outstanding debt of almost R600 billion.

Jaco van Jaarsveldt, director of decision analysis at Experian Africa, says it’s clear the pandemic has had a significant impact on high-income households.

“It is evident that segments of the South African credit population which were previously less affected by the troubled economic environment are no longer immune to financial struggles.”

Experian’s Consumer Default Index (CDI) for the richest credit users deteriorated 13% between December 2019 and 2020. The index measures the total number of accounts that are now in default for the first time, as a percentage of total debt outstanding.

Across all income groups, personal loan repayments have been hit the hardest during the pandemic, according to the latest figures from Experian.

Of all credit products, these defaults increased the most between December 2019 and December 2020. This distress shows that the pandemic continues to put pressure on many people who mostly use personal loans for their monthly expenses, says Experian. Auto loan defaults have also increased.

CDI refers to the Experian Consumer Default Index (CDI).

But mortgage defaults improved slightly from late 2019 to late 2020.

“This suggests that people are prioritizing paying off their home loans over other commitments,” says Van Jaarsveldt.

What’s more, defaults on credit cards and retail store accounts have improved – despite the pandemic. The positive performance of credit cards can be attributed to consumers prioritizing paying off their credit card debt, as it is likely their primary source of funds for their daily expenses, Experian explains.

Defaults on retail store accounts have improved mainly because stores and other lenders adopted stricter criteria before granting credit – and it started even before the pandemic began.

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