How inflation is driving South Africans to rely on short-term loans

South Africans are increasingly relying on short-term loans to make ends meet as the cumulative impact of inflation reduces their purchasing power, according to DebtBusters’ second quarter 2025 Debt Index.

DebtBusters said 95% of people who applied for debt counselling during the quarter had a personal loan, while 54% had a one-month payday loan. These loans have become a lifeline for many households but are expensive, typically attracting more than 23% interest per annum.

“Despite inflationary pressure somewhat subsiding, consumers continue to use loans to make ends meet as the cumulative effect of inflation erodes their income,” DebtBusters said.

Inflation has eased but remains driven by regulated expenses such as electricity and municipal rates. Compared with 2016, electricity tariffs have more than doubled and are now 2.65 times higher, while the petrol price has risen 75%. The compound impact of inflation is now 51%. In major metros, municipal rates continue to rise by double digits annually, adding to financial strain.

Commenting on the July inflation figures, Investec chief economist Annabel Bishop said “the main contribution to the increase in inflation to 3.5% year-on-year, up from 3% in July, was the jump in electricity and water costs, which rose by 8.9% year-on-year and 7.1% year-on-year respectively.”

Old Mutual chief economist Johann Els said water tariffs were slightly higher than expected.

DebtBusters noted that interest rate reductions, access to retirement savings via the two-pot system, and, for some government employees, consolidation loans, have provided some relief. More than 2.2 million South Africans have accessed the two-pot system for a payout of some amount.

Benay Sager, executive head of DebtBusters, said that while rate cuts were welcome, high-interest personal loans remain a major burden. “The average interest rate for unsecured debt is at 23% per annum. While lower than before, this rate is not possible to service for several years at a time,” he said.

Governor Lesetja Kganyago recently said the Monetary Policy Committee decided unanimously to drop the lending rate by 0.25 percentage points, given a backdrop of a stable inflationary environment.

He added that the median debt-to-annual-income ratio has increased to 112% after declining for most of 2024, while the share of income required to service debt has risen to 70%, the highest level since 2017.

The Q2 2025 Debt Index found that, compared to 2016, consumers applying for debt counselling:

• Have significantly less purchasing power. Nominal income has increased by only 2% since 2016, but cumulative inflation of 51% means pay packets buy 49% less than nine years ago.
• Face a higher debt-service burden. On average, 70% of take-home pay goes to debt repayment. Those earning R35 000 or more a month spend 78% on debt. Debt-to-income ratios for top earners are at or near record highs, at 138% for those earning R20 000 or more, and 185% for those above R35 000.
• Carry high and rising levels of unsecured debt. On average, unsecured debt is 33% higher than in 2016. For those taking home R35 000 or more, unsecured debt is 79% higher.

Sager said debt counselling is proving effective, with the number of people completing the process increasing twelvefold since 2016. In Q2 2025 alone, consumers who received clearance certificates repaid more than R770 million to creditors.

“The fact that more people are taking proactive steps to keep their debt under control is good news,” Sager said. Registrations for DebtBusters’ online self-help tools, such as the Debt Radar and the Debt Sustainability Indicator, increased by 6% compared to the previous year, with the subscriber base now above one million users.

Looking ahead, Els said, “I would rather expect rates to remain sideways for an extended period, and then perhaps from late 2026 into 2027.”

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