28% of South Africans Rely on Personal Loans for Emergencies as Cost-of-Living Pressures Rise: What Consumers Need to Know

As South Africa continues to face rising fuel, electricity, water, and general living costs, more households are increasingly turning to personal credit to bridge financial gaps. New research by specialist loan provider DirectAxis reveals that 28% of South Africans apply for personal loans specifically to cover emergency expenses, highlighting the growing role of credit in managing short-term financial pressures.

The study further shows that 20% of consumers use personal loans for home renovations, while 11% rely on them to fund education-related costs. With economic pressure mounting, industry experts expect demand for personal loans to continue rising as consumers seek fast and accessible financial solutions.

According to Gavyn Letley, Product Head at DirectAxis, personal loans remain a preferred form of credit because of their relatively simple application process and quick approval timelines. However, he warns that convenience should not replace informed decision-making.

“While personal loans are often seen as an easy solution, it is essential that consumers fully understand their rights and responsibilities before committing,” says Letley.

Secured vs Unsecured Loans: Key Differences

Letley explains that there are two main types of loans: secured and unsecured. Secured loans are typically used for high-value assets such as property or vehicles. These loans are backed by collateral, meaning the lender can repossess the asset if repayments are not made.

Unsecured loans, such as most personal loans offered by DirectAxis, do not require collateral. Instead, approval is based on the applicant’s credit score, income, and overall affordability. This makes them more accessible but also dependent on strict credit assessments.

How Credit Assessments Work

Credit providers rely on data from credit bureaus to determine risk. These bureaus calculate a credit score based on a consumer’s borrowing and repayment history. South Africans are entitled to one free credit report per year, although digital platforms also allow more frequent access to credit profiles.

Before approving a loan, lenders are required under the National Credit Act (NCA) to assess affordability by reviewing income, existing debt, and repayment capacity. This legal framework is designed to protect consumers from over-indebtedness.

Understanding Loan Costs and Terms

Personal loans in South Africa typically range from R8,000 to R350,000 and are repaid over an agreed term with interest. However, Letley stresses that borrowers should consider the total cost of credit—not just the interest rate.

Additional costs may include initiation fees, monthly service fees, and credit life insurance. Loan terms also play a significant role in affordability: longer repayment periods reduce monthly instalments but increase total interest paid, while shorter terms reduce overall cost but require higher monthly repayments.

What Consumers Should Consider Before Borrowing

Letley advises consumers to carefully evaluate several factors before applying for a loan:

• Affordability: Ensure repayments remain manageable even if expenses or interest rates rise
• Total cost of credit: Understand all fees, not just the loan amount
• Loan term: Balance monthly affordability with total repayment cost
• Lender credibility: Only use registered credit providers approved by the National Credit Regulator
• Early repayment conditions: Check if early settlement fees apply

He further cautions that honesty in declaring income and expenses is critical. Misrepresentation may lead to unaffordable debt, missed payments, and long-term damage to credit scores.

“Responsible borrowing is essential. A loan should ease financial pressure—not worsen it,” Letley concludes.

As South Africans continue to navigate economic uncertainty, financial literacy and informed borrowing decisions remain key to maintaining long-term financial stability.

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