Counting the Cost of SA’s Addiction to Credit

Most addictions are expensive – think of the cost of a packet-a-day smoking habit or the losses racked up by habitual gamblers. The use of credit is an extremely common addiction in South Africa, and it can be very expensive, especially on unsecured credit lines such as personal loans, credit cards and store cards.

The National Credit Act (NCA) allows the Minister of Trade and Industry to prescribe maximum interest rates for different types of credit agreements, based on the prevailing repurchase (“repo”) rate as determined by the SA Reserve Bank. Personal loans are limited to the repo rate plus 21% (7.5% + 21% = 28.5%), while credit card accounts may charge up  to the repo rate plus 14% (7.5% + 14% = 21.5%).

These rates are very high, and many providers do charge these maximum rates. Imagine receiving a 28.5% annual return on an investment! But this is what credit providers are earning as a return on their loans to you, the consumer.

Benay Sager, chairman of the National Debt Counsellors’ Association, says it’s important for consumers to understand how much interest they’re paying on credit-related products such as personal loans and credit cards, comparing this with the maximum rate to make sure they are being charged fairly.

Illustrating just how expensive this type of credit is, Sager says that last year the average personal loan was just over R30 000. “Assuming the loan term is one year at a rate of 28.5%, the borrower would pay R8 550 in interest. In South Africa loan terms can range from three to 84 months. Similarly, average credit card balances are R24 000, attracting approximately R430 in interest per month. This amounts to R5 160 interest per year.”

Debt statistics

Two recent surveys show that South Africans remain addicted to credit, and although unsecured credit is highest in the low-income market, higher earners are also susceptible.

Debt counselling firm DebtBusters’ Q1 2025 Debt Index found that, on average, consumers who applied for debt counselling in the first quarter of this year used 69% of their take-home pay to service debt. This is a significant increase compared with previous quarters and the highest since 2017.

The most vulnerable consumers, taking home R5 000 or less per month, used 76% of their income to repay debt, according to the report. Those earning R35 000 or more used 77%. The ratios for these income groups are the highest since DebtBusters started analysing the data in 2016.

Unsecured debt has, over the years of the survey, ranged between 45% and 50% of DebtBusters’ debt under management. In the Q1 2025 survey, this percentage ranges from a staggering 92% of debt of people in the under R5 000 per month income band to 35% of the debt of those bringing home more than R35 000 per month.

The Eighty20/XDS Credit Stress Report for the first quarter 2025 looked at the South African credit market overall. The outstanding balance on all retail loans (including vehicle finance and mortgage loans) across South Africa’s roughly 20-million credit-active individuals was up 2.1% quarter-on-quarter to R2.56 trillion. Taking a conservative average interest rate of 15% on this amount, it means South Africans are paying R384 billion annually in interest on their debt, or roughly R19 200 per credit-active individual.

In the first quarter of 2025, just over 700 000 people entered the credit market for the first time. The vast majority (98%) were earning less than R20 000 per month. Only about 1% of new credit products issued were secured debt in the form of mortgage loans and vehicle finance. The rest (99%) were unsecured debt in the form of store cards, personal loans and credit cards. However, the value of new secured debt to unsecured debt was roughly equal.