Car owners still struggle to pay off their vehicle loans

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South African car owners are still grappling with the negative economic impact of the Covid-19 pandemic, with many defaulting on their vehicle loan repayments.

A new credit stress report by research and analytics company Eighty20 showed that vehicle asset finance has seen a 32% increase in overdue loans year on year. 

The report is a clear indication that consumers have their backs against the wall, and when faced with the greater threat of eviction or foreclosure of their homes, are opting to sacrifice their vehicle loan repayments, said Neil Roets, the chief executive of Debt Rescue.

“South African households are clearly under pressure due the consequences of Covid-19, with many having lost their jobs or seeing a reduction of income. This continued stress placed on household income meant many had to make some difficult decisions,” Roets said in a statement.

TransUnion’s recent Consumer Pulse Study for the second quarter of 2021 showed that 13% of consumers cannot cover their vehicle insurance and 25% are not able to repay their vehicle loans after many households lost their income, and some their jobs, due to the lockdowns imposed from last year in response to the pandemic

On a more positive note, however, Experian South Africa’s consumer default index (CDI) said the rate at which people defaulted on their loans decreased in the second quarter of the year. The CDI measures the default behaviour of consumers with home loans, vehicle loans, personal loans, credit cards as well as retail loan accounts.

The CDI index improved from 4.33% in March to a reading of 4.03% in June 2021, Experian said, tracking lower than the all-time high of 5.68% observed in 2020 after the government first imposed a hard lockdown from March that year, which grounded all but essential services.

However, the report also shows that South African consumers’ debt remains high at R1.9-trillion. 

Supporting this, there has been a surge in used car sales as some people sell cars they can no longer afford while others opt to purchase used vehicles rather than new ones.

According to Engineering News, digital motoring marketplace AutoTrader saw a 36% increase in searches for used vehicles in the second quarter of 2021 compared with the same period last year.

Roets said the automotive sector could be seen as a leading indicator of where the economy is heading. 

There are some signs of recovery after last year’s extreme lows, with the National Association of Automobile Manufacturers of South Africa reporting that domestic new vehicle sales increased by 24.6% in August 2021 compared to the same month last year.

Anathi Madubela is an Adamela Trust business reporter at the Mail & Guardian.