Consumers appear to be managing their debt, such as home loans and credit cards, better than a year ago, but being well dressed seems to be a priority for South Africans.

Credit bureau TransUnion’s inaugural “Industry Insights Report” found that fewer credit accounts are being opened across all categories except for clothing accounts, which soared by 31% over the third quarter of this year compared to the same period a year earlier.

The quarterly report analyses TransUnion’s database of 23-million active credit records across three categories, which include new accounts opened, balances outstanding, and whether accounts are in arrears.

Carmen Williams, director of research and consulting at TransUnion SA, says that although significantly more clothing accounts were opened in the third quarter, the average balance of new accounts is R2,000 lower than existing accounts, reflecting the strategy of clothing retailers trying to gain customers through supplying this credit, but to limit their risk by granting lower credit limits.

The third quarter of 2018 saw a decline of 7% in the opening of new credit card accounts compared with the corresponding quarter in 2017. Last year saw a boom in new credit card accounts as new competitors entered the market and due to increased card marketing.

Williams says the considerable decrease in arrear accounts in the past two years shows consumers have been actively managing their credit card debt.  She says most consumers are cautious in how they use their credit facility — for example, it is likely that most card holders use their facility for a number of smaller purchases each month rather than maxing out their limit with a single purchase.

Growth in the credit card market slowed to 3% over the third quarter of 2018 from 9% in 2017. Considering that the savings rate is low in SA, it is encouraging to see that consumers are managing their credit responsibly, Williams says.

Vehicle finance payments

TransUnion’s analysis found that, in contrast to other types of credit, consumers have been delinquent in keeping up with their vehicle finance payments. Delinquencies — defined as three or more payments in arrears — have been rising steadily in the vehicle finance market over the past two years. New vehicle loans saw a 3.7% decline in the review period from the comparable period the year before as vehicle finances companies tighten their lending criteria to mitigate against the rise in the rate of poor payment.

However, analysis over the shorter term, that is over the most recent two quarters, indicates that consumers may be improving their payment behaviour on their car loans, Williams says. As at the third quarter of 2018, the average balance per account was R184,000 and the average new account loan amount was R301,000.

On the home front, the average balance per account is R484,000. The value of new accounts opened in the third quarter is substantially higher at an average of R723,000.

Home loans, although representing the single, largest outstanding balance collectively of all credit agreement types, had the lowest rate of delinquencies at 3.8%. This low level of non-payment is due to stricter lending criteria, as well as homeowners dutifully paying their loans each month.

Williams says that consumers have generally been managing their finances very well and it is important that they continue to do so going into the tougher January from increased spending over the festive season. 

Towing the debt line: practical tips

  • Avoid the January financial hangover: binge spending in the lead-up to Christmas will have nasty consequences for your debt levels and add to your obligatory expenses in the new year.
  • Prioritise your spending: stick to buying the essentials rather than splurging on luxuries that you can probably do without.
  • Mind your score: banks use your credit score to determine the amount of credit they are prepared to extend to you.
  • Manage your credit score: TransUnion offers all consumers a once-off free credit report each year.
  • Don’t hide: if you cannot meet your payment obligations, speak to the lender about your difficulties. Do not ignore it and hope the problem will go away.