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The cost of payment holidays


Payment holidays were good news for people facing a short-term cash crunch, but they came at a cost

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PAYMENT holidays offered by credit providers during the three-month Covid-19 lockdown, from April to June, will cost an additional R20.7 billion for the estimated 1.6 million South African consumers who took advantage of them.

This is the view of Benay Sager, the chief operating officer of debt counselling firm DebtBusters.

Sager says that although payment holidays were good news for people facing a short-term cash crunch, they came at a cost. This is as a result of interest accumulating on the debt owed, even though payments were put on hold for a while.

“We understand that for many consumers payment holidays were a lifeline. For people who were desperate to make ends meet during the hard lockdown, the additional interest may have seemed an inconsequential consideration, but on average a three-month payment holiday will have increased what they owe by 4.2%.

“That equates to R12 900 over and above the original debt for the average consumer who participated in the payment holidays for three months.”

DebtBusters’ analysis was conducted based on the profiles of typical consumers who applied for debt counselling over the past year. The analysis includes a breakdown of how a three-month payment holiday affected the consumers’ debt:

For those who deferred bond repayments, the debt on their mortgage has grown by R14 300.

A three-month payment holiday on vehicle finance came at an additional cost of R6 000.

The same three-month break from repaying a personal loan has cost consumers an average of R9 800.

People who took payment holidays on all three types of debt will, on average, have to repay R30 100 on top of what they owed.

“In a country as over-indebted as South Africa, especially at a time when the economy is contracting, this is enough to push people who were just about making ends meet into a situation where their debt-to-income ratio is unsustainable,” says Sager.


Meanwhile, South Africa’s banks are taking a hammering as consumers and small businesses struggle with debt repayments.

Last week, Absa reported a drop in half-year profits of 82%, with a four-fold increase in loan impairments to R14.7 billion. Standard Bank reported a 72% drop in half-year profits from its South African operations, with its provision for bad debt rising 2.7 times to R11.3 billion.

Bloomberg reported last week on how impaired loans in the banking sector had risen from about R165bn in February to more than R220bn at the end of June.

The initial payment holiday offered by banks and credit providers was for the three months of hard lockdown.

However, if you’re still struggling, as many consumers are, your bank may try to assist you by extending payment relief on a client-by-client basis or restructuring your debt repayments. If you have no success with credit providers and feeling overwhelmed, you need to consider debt counselling.

Sager says that people who find themselves struggling to make repayments as a result of increased debt levels or constrained income should seek help sooner rather than later.

“Although some people are sceptical about debt counselling, the reality is that in South Africa it is highly regulated and generally very effective. By getting help from a reputable debt counsellor as soon as you realise you’re in trouble, you can avoid a situation where you could lose everything you’ve worked for.”

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