New Consumer Finance Product Hits the South African Market

New Consumer Finance Product Hits the South African Market

The well-known short-term lender Wonga has recently added to its range of consumer finance products with a 6-month flexi-loan, but will it be a valuable addition to the range of finance products already on the market and how does the loan work?

With difficult economic conditions and the cost of products rising, the strain on incomes continues to be a problem for many South African households. As a result, more consumers are accessing credit than ever before. In 2017, figures showed that there were 24.7 million credit-active consumers, up by 1.6 million in only two years. Much of that consumer credit comes in the form of credit cards, store cards and overdrafts, which means this new offering from Wonga could bring much-needed choice to the market.

A viable alternative to the payday loan?

The new offering from Wonga is a 6-month flexi-loan. Like a payday loan, the loan is unsecured, which means the borrowers’ assets are not at risk if the repayment terms are not met. However, there are also a number of important differences such as the amount that can be borrowed, the repayment term and the annual percentage rate (APR).

Unlike payday loans which are intended to be repaid within 30 days, the flexi-loan has repayment terms of between 4 days and 6 months, allowing borrowers to spread the cost of the loan over a longer period of time. New borrowers are able to access up to R4000, which they repay in equal monthly instalments. In the example of a R4000 loan borrowed over a 6-month period, the total cost of the loan would be split into 6 equal payments of R900 per month.

A more affordable option

A loan is only affordable if the borrower can comfortably repay it. However, the flexi-loan can make more sense in some circumstances, particularly for those who need to borrow to meet unavoidable costs. The trouble many consumers have with payday loans is that because the loan has to be repaid after 30 days, they are then left out of pocket the following month, which can lead to a debt spiral.

The benefit of the flexi-loan is that consumers can spread the repayments over the longer term. That reduces the proportion of the interest they have to repay each month, making the loan more manageable for many prospective borrowers. Having the flexibility to pick their own repayment period also allows borrowers to set create a loan that’s a good fit for their monthly budget.  

Could a flexi-loan be the right option for you?

Just because Wonga’s new product offers more flexible terms, it does not mean it’s a suitable option for every borrower. If you need quick access to short-term credit but cannot or do not want to commit to making the full repayment after 30 days then this could be an option for you. However, as always, you must be completely confident in your ability to repay the loan before you apply. This type of loan should also never be used to manage existing debt or used as a solution to long-term financial issues.

Do you think the 6-month flexi-loan has a place in the South African market? Is it a product you might consider using? Please share your thoughts in the comments below.

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