BLACK Friday is continuing to drive higher credit usage as South African consumers are unable to resist the enticing deals despite struggling with increasing debt burdens.
According to data from global information and insights company TransUnion, consumers who opened new credit facilities during the Black Friday period every year ended up spending more than consumers with existing accounts by up to R10 000 more, in the case of credit cards.
The firm said that new credit card accounts opened in November last year ended the month with a 52 percent higher spend than existing accounts, with an average balance of R28 470 compared to R18 725.
Retail instalment account balances were 59 percent higher than existing accounts, retail revolving accounts were up 98.4 percent and new clothing account holders spent a whopping 192.5 percent more than existing account holders. Year-on-year balances for new accounts also increased across the board, ranging from 14.7 percent for credit cards to 29.6 percent for clothing accounts.
The arrears percentage of new accounts measured by the number of accounts which accrued missed payments over the total new accounts opened during Black Friday last year was slightly higher than business as usual (BAU) arrears levels after six months for clothing accounts at 16.3 percent, compared to 13 percent for accounts opened in the rest of the year.
Retail revolving accounts were at 15.9 percent compared to 14 percent. Retail instalment arrears were high, at 30 percent, whereas accounts opened in the rest of the year averaged 14 percent. Credit card arrears were lower than usual, where the general level for the study was 9 percent, new account arrears were at 8.4 percent.
TransUnion Africa chief executive Lee Naik said this increase in spending came at a time when South Africans were already highly indebted.
According to the South African Reserve Bank, the household debt-to-income ratio, which measures debt as a percentage of nominal disposable income, rose from 72.9 percent in 2019 to 77.1 percent at the end of last year. The ratio currently stands at 75.1 percent for this year.
“Despite overall levels of consumer debt remaining high, we’re still anticipating a higher consumption of credit on new facilities compared to existing facilities during the Black Friday period across several credit types. More than ever, South African consumers must be sure they can repay any credit they incur, and lenders need to make informed and responsible lending decisions in granting credit,” Naik said.
The TransUnion research showed that much of the additional spend was driven by older consumers born before 1981, with younger age groups tending to consume significantly less credit when opening new accounts.
Millennials born between 1981 and 1996 and Gen Z born between 1997 to date dropped their spend on new clothing by 21.9 percent and retail revolving accounts by 28.7 percent between 2019 and last year. There was, however, a slight increase in retail instalment at 6.2 percent and credit card spend at 15.2 percent.
The firm said that for consumers to use credit responsibly, before applying for credit this Black Friday, it was important that they had a full picture of their own ability to repay any new debts.
To avoid Black Friday blues, it said that they should start with a credit health check on what they owed. This included pulling a recent credit report to see whether they had debts they were unaware of or had forgotten about. They could also check if they had any defaults or judgments against them as the better they understood their financial health, the more realistically they could set limits as to what they could afford.
Consumers were also advised to go easy on the loan applications as too many loan applications in a short space of time could be a red flag to lenders that one was in financial trouble. Every time one applies for credit, the lender draws a credit report on them in something known as a ‘hard’ enquiry. This would show on one’s credit record when viewed by other lenders. Too many ‘hard’ enquiries can negatively impact one’s credit score.
It was said that customers should read the fine print as many credit agreements offered the option of credit insurance, which ensured one’s debt was paid if they could not pay due to job loss or illness. Meeting the minimum monthly repayments and if possible, paying the debt off faster. Missed, or late, payments were the biggest factor that affected one’s credit score negatively.
TransUnion said customers should do their homework and be clear on what they wanted to get out of Black Friday as one item might be more important than a new another. They could then only focus on those important items.