South African consumers are battling to pay their home loans and credit cards, and in response, lenders are tightening their requirements to qualify for a credit card or personal loan. It is especially significant that people who could afford to buy a house or qualify for a credit card are now unable to pay their instalments.

This shows that consumers continue to battle the rising cost of living and low economic growth. According to the Experian Consumer Default Index for the third quarter, there was a significant increase in consumer debt default compared to the third quarter of 2022, from 3.69 to 4.88 or 32%, indicating that consumers increasingly struggle to meet their debt obligations amid the cost of living crisis.

The composite index remained unchanged on a quarterly basis, from 4.88 in June 2023 to 4.88 in September 2023.

Jaco van Jaarsveldt, head of commercial strategy and innovation at Experian, says this stability, despite high interest rates and reduced lending across all products, was expected as consumers historically tend to pay off their debt in preparation for increased spending over November’s Black Friday, as well as the festive period.

“The fact that the reading remained flat as opposed to previous years’ improvement suggests that consumers continue to face financial strain in the credit market.”


At the same time, inflation increased in August and September. Although it is still within the South African Reserve Bank’s target range of 3% to 6%, it signals that cost of living pressures in the South African economy have not subsided, says Van Jaarsveldt.

“Add to this the lacklustre performance of the South African economy, which contracted by 0.7% on a year-on-year basis in the third quarter of 2023 and the persistent high unemployment rate, and the overall environment for consumers and small businesses remains challenging.”

Van Jaarsveldt says the sustained high credit application levels suggest that consumers are turning to credit to cover gaps in their cost of living expenses.

“However, despite the high demand, approval levels for new credit applications remain low, with more than two-thirds of applications for credit rejected.”

These non-approvals are largely due to consumers’ inability to afford additional credit commitments amid the ongoing cost of living pressures and credit providers tightening approval criteria as the increased provisions for non-performing debt start to affect profits, he says.

Curbing credit risk

New business volumes for unsecured loans, such as retail and personal loans, have not yet recovered to pre-pandemic levels, but secured lending products, such as vehicle and home loans, have shown signs of sustained slower growth.

Van Jaarsveldt says lenders seem to be curbing the credit risk associated with new business in personal loans and credit cards by reducing opening limits, particularly for highly affluent consumers. “This indicates that these consumers increasingly depend on unsecured loans to maintain their living standards.”

As the cost of living continues to rise and the Consumer Default Index continues an upward trend, it is crucial for consumers as well as financial institutions to monitor these closely and make informed decisions to navigate this challenging economic landscape, he says.

The index for the third quarter revealed a significant year-on-year deterioration, specifically in home loans and credit cards, which highly affluent consumers commonly use. This is a continuation of the trend observed over the past 12 months, which indicates that the most affluent segment of the market continues to struggle to repay their debts and increasingly rely on credit cards.