With the dramatic shifting of credit from a tool for upward mobility to a survival mechanism for basic necessities like food, rent, electricity and transport, alarm bells are being sounded about unsustainable debt levels of consumers.

The National Financial Ombud Scheme South Africa (NFO) is concerned about high levels of debt exposure in the wake of the release of TransUnion’s Q1 2025 Industry Insights Report which confirms a troubling trend: credit products commonly used by lower- and middle-income consumers are experiencing rapid growth in both uptake and default rates.

With many households relying on credit just to meet basic needs, the NFO has warned of a surge in retail and non-bank loan defaults and urges consumers to beware of reckless lending which can only place them deeper in debt.

FINANCIAL STRAIN

According to TransUnion which explores financial trends in South Africa, non-bank personal loans now reflect the highest rate of serious delinquency in over three years, with 41.3% of account holders falling three months or more into arrears. This represents a sharp 520 basis point year-on-year increase and outpaces the default rate for bank personal loans by over 15%.

The statistics for other retail credit products are equally concerning for the NFO. Default rates now stand at 27.1% for retail instalment accounts, 25.9% for clothing accounts, and 14.9% for retail revolving credit. The TransUnion report shows that while more consumers are taking up loans, retail instalment credit is up 16%, clothing credit 7.6%, and revolving credit 5.4%. The simultaneous rise in missed repayments signals growing financial strain on households.

Kwanda Vabaza, Manager - Adjudication at the NFO’s Banking and Credit Division, said: “These figures are not just statistics. They reflect the reality of households using credit to survive rather than to grow. When nearly half of all non-bank loan holders are behind on their payments, the system is under serious strain.

KNOW YOUR CREDIT RIGHTS

“Many consumers remain unaware of their rights under the National Credit Act (NCA), particularly when it comes to reckless lending.”

The Banking and Credit Division of the NFO, led by Nerosha Maseti, has jurisdiction on non-bank credit disputes, covering credit agreements such as store and furniture accounts, microloans, non-bank credit cards, non-bank vehicle finance, non-bank home loans and other forms of credit not issued by banks.

Vabaza said: “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 NCA. In such instances, consumers are entitled to relief, which may include restructured terms or, in extreme cases, a recommendation by the NFO for the cancellation of the debt.

“The NFO also frequently receives complaints relating to clothing accounts, furniture and appliance credit, store cards, and non-bank personal loans. These disputes typically involve issues such as prescription (legally expired debt), incorrect balances, credit bureau listing disputes, fraud, and affordability assessments that were either not conducted or done improperly, leaving consumers burdened with unsustainable debt.

“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.”

Fortunately, for those who must contend with credit woes, they need not suffer in silence when things go wrong - the NFO is ready to help consumers with their challenges, ensuring financial fairness, transparency and justice in credit-related matters. The NFO offers free alternate dispute resolution, thus protecting and empowering credit-active consumers.

“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,” said Vabaza.

CREDIT APPLICATION TIPS

The NFO encourages all consumers to keep the following tips in mind when using or applying for credit:

• Only borrow what you can afford to repay and do not misrepresent your affordability prospects: Before accepting any credit, check your income and monthly expenses to make sure you can manage the repayments comfortably.
• Avoid using credit for day-to-day expenses: Relying on credit to buy food, fuel, or airtime can quickly lead to debt spirals. Credit should be used wisely, not for survival.
• Understand all the terms and costs: Ask for a Pre-Agreement Statement and Quotation which contains a full breakdown of interest rates, monthly repayments, and total costs before signing a credit agreement.
• Know your rights under the National Credit Act (NCA): You are entitled to fair treatment, proper affordability checks, and clear communication from any credit provider. If these are not followed, you may have a valid complaint.
• Pay on time and keep track of your accounts: Set up reminders or debit orders to ensure you never miss a payment. Keep a record of all your credit agreements and statements to avoid 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 to protect your rights as a credit consumer,” Vabaza concluded.