Data analysis shared by the South African short-term loan provider Wonga shines fresh light on the financial impact of the Covid-19 pandemic and how consumer borrowing habits changed during that time.
A Decrease In Short-Term Loan Dependency
The data analysis found, perhaps surprisingly, that consumer reliance on short-term loans fell during the Covid restrictions. The number of loan applications from borrowers who already held a short-term loan fell by 32%. This is likely to be the result of the various support packages, such as income support and payment deferrals, which helped households to make ends meet. Consumer spending also fell dramatically during this time, leaving people who were able to continue working with more money in their pockets.
Of those who applied for a short-term loan despite already having a loan with another lender, their debt-to-income ratio fell by 3%. So, although they still felt the need to apply for a short-term loan to tide them over, the amounts they borrowed were lower as a proportion of their wages.
Essential Service Employees Were More Reliant On Loans
According to a national survey, three million South Africans lost their jobs as a result of the pandemic. However, research by Wonga found that it was those employees still working who relied on consumer borrowing the most.
Wonga found that those working in essential services such as health, electricity, transportation, mining and legal services made more short-term loan applications during the pandemic. That’s despite the fact that their income either remained stable or increased following the Level 5 Lockdown.
However, in the industries that were put under severe pressure by the pandemic and where many people lost their jobs, such as hospitality, cleaning, leisure and culture, loan applications fell. Here it is thought that the income support schemes and the ability to use savings, borrow money from family and friends and negotiate payment options helped to reduce people’s reliance on short-term loans.
The Picture One Year On
One year after South Africa’s hard lockdown, Wonga carried out further research into how consumer borrowing habits had evolved. It found that, rather than returning to pre-pandemic levels, people appear to be less in debt and less reliant on short-term lenders than they were previously.
The research found there was a 17% reduction in the number of customers applying for one or more short-term loans in 2021. There were also 3% fewer delinquencies over the first three months of 2021. This shows that despite the considerable pressure many households are under, consumers are more reluctant to use short-term loans after the pandemic. It also shows that the stricter affordability checks carried out by lenders are helping to reduce access to problematic short-term loans that consumers may not be able to repay.
