PAYDAY LOANS IN JOHANNESBURG
More often than not, we, the middle-to-bottom of the line class in society, find ourselves drenched in a financial mess that, in many situations, is the consequence of past decisions that were unavoidable.Take for instance a newly-wedded couple with a combined net income of R15 000 p/m; there are shortcomings like vehicle breakdowns, household maintenance and acts of god (something that has become more prevalent in today’s climate change) that can affect how comfortable this couple lives with such a vulnerable amount. With a shaky credit history and a red light struck on affordability, can one guess where they will go knocking for help when any of the possibilities listed above become reality? You guessed it – Payday Lenders.
In Johannesburg alone, 6 in every 10 employed citizens are, on average, in need of a quick and easy loan to supplement an urgent fix. Unlike at the bank, payday lenders do not fuss about paperwork like bank statements proving affordability or proof of employment, the most important thing is collateral. The one thing standing between you and all of your problems solved is your response to “what do you have that I can hold on to?”
So, what exactly is a payday loan? It is an express loan that is repayable within 30 days. Many people take out such a loan to pay for basic necessities if they run out of money before the end of the month. Thousands of Joburgers have payday loans and numbers have grown significantly over the years, according to the Business Times.
The dramatic shift towards payday loans has an impact on other existing loan agreements, particularly secured loans. Thirty-five percent of people with payday loans also have vehicle finance, 94% have one or more personal loan, 79% have credit card accounts and only 17% have home loans.
The value of payday loans is usually small, but the interest can be very high. The number of smaller providers of payday loans has been reduced, and some banks have now entered this market.Right now, millions of consumers who need cash fast — say, to cover an unexpected car repair or to avoid having their utilities shut off — often end up borrowing a few thousand rands from lenders who offer an advance or their paycheck or hold their car titles as collateral. Such businesses often charge high fees and punishing interest rates, dragging borrowers into a cycle of debt that’s hard to break. “Borrowers need a better option,” Ben Schoemer, senior research officer with PWC’s consumer finance project that focuses on consumer loaning activity in Johannesburg, said. PWC has done extensive research on “underbanked” consumers, who often turn to payday lenders.
Borrowers who are based in Johannesburg, who often have poor credit, can be kept in the “financial mainstream,” Mr. Schoemer said, if traditional banks and credit unions would offer small installment loans with safeguards that would protect both the banks and the borrower. Payday borrowers typically have checking accounts — they must show regular deposits as collateral for the loans — and many say they would prefer to borrow from their own bank if they could qualify, Mr. Horowitz said.
Banks are in a good position to offer such loans, if regulators approve, PWC suggested. The average payday loan customer borrows R5 000 over 30 days and pays R8 450 including rates and fees, while banks and credit unions could profitably offer the same amount over the same period for less than R1500 in fees.
A spokesman for one large bank said in an email that “we believe banks need to be able to meet their customers’ short-term, small-credit” needs.