Another harsh reality check for South Africans

This is raising serious concerns about the country’s growing household debt burden, with the National Financial Ombud Scheme South Africa (NFO) warning that unsustainable credit practices are placing vulnerable consumers under mounting pressure.

A recent report from TransUnion highlighted that credit products most commonly used by low- and middle-income South Africans are seeing rapid increases in both uptake and default rates. 

With more households relying on credit just to meet essential needs like food, rent, electricity, and transport, the NFO has raised the alarm about a growing debt crisis.

“These figures are not just statistics. They reflect the reality of households using credit to survive rather than to grow,” said Kwanda Vabaza, Manager of Adjudication at the NFO’s Banking and Credit Division. 

“When nearly half of all non-bank loan holders are behind on their payments, the system is under serious strain.”

According to TransUnion’s Q1 2025 Industry Insights Report, non-bank personal loans now have the highest serious delinquency rate in over three years. 

Around 41.3% of account holders are at least three months behind on payments, a sharp 520 basis point increase from a year ago. 

This rate is over 15% higher than bank-issued personal loans, highlighting the greater risk associated with credit offered outside traditional banking institutions.

Vabaza said this troubling rise is mirrored across a range of retail credit products. 

“We’re seeing default rates of 27.1% for retail instalment accounts, 25.9% for clothing accounts, and 14.9% for retail revolving credit.” 

“At the same time, uptake is rising, with retail instalment credit up 16%, clothing credit by 7.6%, and revolving credit by 5.4%,” he said. 

“The combination of growing use and missed repayments shows just how financially strained many households have become.”

Know your rights

The NFO’s Banking and Credit Division deals specifically with disputes involving non-bank credit products.

These include store and furniture accounts, non-bank credit cards, microloans, vehicle finance, and home loans provided by non-bank lenders.

Vabaza explained that one of the most persistent problems they encounter is reckless lending.

“We continue to see cases where credit was granted to consumers who clearly could not afford the repayments. This is classified as reckless lending and is prohibited by the National Credit Act (NCA),” he said. 

“In such instances, consumers are entitled to relief, which may include restructured terms or, in extreme cases, cancellation of the debt.”

The NFO also frequently receives complaints about issues like incorrect balances, expired debt, fraudulent accounts, poorly conducted affordability assessments, and disputes over credit bureau listings. 

Many of these cases involve clothing, furniture, and appliance accounts, forms of credit often marketed to lower-income consumers.

“Consumers have the right to receive credit only when it is affordable and in their best interests. They are also entitled to clear explanations of the total cost and legal consequences of any credit agreement they enter into,” Vabaza said.

Despite the scale of the problem, Vabaza said that when credit agreements go wrong or seem unfair, consumers do not have to face the battle alone. 

“The NFO offers free, impartial dispute resolution services to protect and empower credit-active South Africans.”

“Where rights are violated, consumers should contact our office. Our services are free and impartial, and we aim to resolve disputes in a way that is fair to both the credit provider and the consumer.”

He urged consumers to stay vigilant and adopt good credit habits, offering a set of practical tips. “Only borrow what you can afford to repay, and do not misrepresent your affordability.” 

“Before accepting any credit, check your income and expenses to make sure you can manage repayments comfortably. Avoid using credit for day-to-day expenses like food, fuel, or airtime, as it can quickly lead to a debt spiral,” he warned.

Keeping track of payments and setting up reminders or debit orders can help prevent defaults, and consumers should keep records of all credit agreements and statements to avoid unexpected surprises.

“If you are struggling or believe your credit agreement may not have been fair, contact the NFO. We are here to help ensure accountability and protect your credit consumer rights,” Vabaza said.

Issued on BusinessTech by Malcolm Libera | https://businesstech.co.za/news/finance/833479/another-harsh-reality-check-for-south-africans/