Unsecured credit up

PRESSURE: CONSUMERS OPT TO PAY OFF HOME AND CAR LOANS FASTER

We are still seeing mixed picture of recovery, says CEO TransUnion Africa.

Consumers opted for more unsecured credit and paying off secured credit faster during the first quarter of the year.

This comes as the industry faces new challenges against a background of rising stagflation risks and high inflation combined with high unemployment and stagnant demand.

The findings of TransUnion’s first quarter South Africa Industry Insights Report shows consumers were increasingly interested in retail and other unsecured credit, such as credit cards and unsecured personal loans, as they were planning to use credit to make up for price increases on goods due to high inflationary pressure.

There were fewer new loans for secured lending products, such as home and vehicle finance loans.

Lender feedback also suggests some consumers considered reducing their monthly repayments by paying more than required per month against the backdrop of the three interest rate increases between November last year and March this year.

The report showed notable increases in new unsecured credit, but outstanding credit balances declined across all major consumer lending categories compared to the first quarter of last year, except for non-bank unsecured personal loans, which recorded a modest increase of 0.9%.

Outstanding balances often reflect consumer sentiment and related willingness to spend and these findings were further supported by the results of TransUnion’s first quarter Consumer Pulse Study during the same period. This study showed that 32%

of consumers experienced a decrease in household income and 53% planned to decrease discretionary spending.

On the other hand, the study indicated that for secured loans for homes and vehicles, new credit and balances decreased, although the reasons for the declining outstanding balances were different.

While outstanding balances for unsecured loans are often a reflection of current buying activity, balances for secured loans often reflect the consumer’s longterm planning due to significant repayments.

Insights suggest consumers want to reduce financial commitments against a backdrop of rising interest rates. Due to an influx of new loans for lower value homes, the new average loan amount decreased by -5.8% in the fourth quarter of 2021.

In the auto industry, the trend is for consumers to pay off vehicle finance loans earlier by selling extra vehicles due to rising prices of quality second-hand cars, as used vehicle price inflation increased from 3.7% to 7.9%.

This recent decrease in secured lending balances was also reflected in TransUnion’s Consumer Pulse Study that indicated 32% of consumers said they intended to pay off current debt faster.

“We are still seeing a mixed picture of recovery. The SA consumer credit market was still trending back to pre-pandemic levels of activity when the shock of inflationary pressures associated with the conflict in Eastern Europe hit,” Lee Naik, chief executive of TransUnion Africa, said.