Consumers turning to non-bank loans

Consumers are increasingly taking out nonbank personal loans to meet their financial objectives.

The 13.6% year-on-year increase in these types of loans shows that people are under pressure and are battling to meet their loan commitments, said TransUnion director of research and consulting, Ayesha Hatea.

TransUnion on Tuesday released its Q1 2025 SA Industry Insights Report, which also shows that personal loans from banks had also gone up by 2.7%.

“The nonbank personal loan segment is expanding rapidly. The number of active accounts grew to 7.63-million while the number of consumers carrying a balance rose to 5.26-million. This growth reflects strong demand for credit among consumers who may be underserved by traditional banks,” the report noted.

“However, the average balance per account declined to R12,160, down more than 11% from the previous year. This indicates that while more consumers are accessing nonbank credit, they’re doing so in smaller amounts, likely to meet short-term or emergency needs.”

The report said origination volumes “remained high and the average new loan amount increased slightly to R5,570”.

“However, the credit quality in this segment is deteriorating. Balance-level delinquency rose sharply to 41.74%, while account-level delinquency reached 41.29%. Though consumer-level delinquency improved marginally compared to the previous quarter, it remained elevated at 44.27%.

“These figures highlight the financial vulnerability of many nonbank borrowers and raise concerns about the sustainability of growth in this segment.”

The report noted that the trends carried several important implications, including that the “diverging risk profiles between bank and nonbank lenders suggest risk is becoming more concentrated in the nonbank space”.

“While banks are serving fewer but higher-value borrowers, nonbanks are absorbing a broader base of financially vulnerable consumers. The rise in average loan sizes among bank borrowers and high delinquency rates in the nonbank segment point to growing affordability pressures across the board,” reads the report.

“The rapid expansion of nonbank lending highlights the need for stronger affordability assessments and consumer protection frameworks, particularly as more consumers turn to this segment for short-term financial relief.

“From a regulatory and policy perspective, closer oversight of the nonbank sector may be warranted to better ensure responsible lending practices and mitigate systemic risk.

“For lenders, these dynamics call for a careful balance between expanding access and maintaining portfolio quality. Investment in better risk models, customer support and financial education will be essential to support sustainable credit growth and protect consumer financial health.”

The report said the “delinquency rate among nonbank personal loans was 15 percentage points higher than delinquencies on bank personal loans”.

“Nonbank loans expanded rapidly, particularly among financially vulnerable consumers, but rising delinquency rates signalled growing repayment risk.”

Hatea said this shows that South Africans are increasingly turning to low-value personal loans with shorter repayment terms to manage their monthly expenses.

“However, persistently high delinquency rates – particularly among nonbank personal loans – indicate that many consumers are under significant financial pressure and struggling to meet their loan commitments,” she said.

“As lenders respond to growing demand for this type of credit, it’s essential they align their growth strategies with prudent risk management to ensure long-term sustainability.”

The report found that credit card usage was continuing to grow. It noted that balances were rising faster than account volumes, indicating increased reliance on revolving credit.

“The credit card market in SA continued to expand in Q1 2025 as the number of active accounts rose to 7.28-million. This represents a year-on-year increase of just over 3%, reflecting steady growth in credit card adoption.

“Total outstanding balances reached R182.97bn, up more than 7% from the previous year, indicating consumers are not only opening more accounts but also using them more actively,” the report said.

“The average balance per account rose to R25,120, an increase of nearly 4% year-on-year. This suggests consumers are relying more heavily on their credit cards, likely as a means of managing day-to-day expenses in a still-constrained economic environment.

“The increase in the number of consumers carrying a balance further supports this view. As economic pressures persist, credit cards are being used less for convenience and more as a financial buffer. The rise in usage, coupled with stable delinquency at the consumer level, points to a financially stretched but disciplined borrower base.”