Loan cost check

The limits on a short-term loan

The National Credit Regulations call a cash loan of up to R8 000, paid back in full within 6 months, a short-term credit transaction. A payday loan usually fits this description. The regulations set these limits:

• Interest: at most 5% a month on your first short-term loan in a calendar year, and 3% a month on later ones in the same calendar year.
• Initiation fee: at most R165, plus 10% of the amount above R1 000. It can never be more than R1 050, or more than 15% of the loan. A lender may charge it only when it makes a new loan agreement with you.
• Service fee: at most R60 a month.
• Credit life insurance: a lender may ask you to take cover. It can cost at most R4.50 a month per thousand rand you owe.

The regulations don’t say whether the fee limits include VAT. The National Credit Regulator says the service fee limit excludes VAT, so a lender registered for VAT can add VAT at 15%. The check gives the initiation fee the same benefit of the doubt.

For a first loan in the calendar year, paid back after one month:

The most a lender could charge on a first short-term loan paid back after one month

You borrow	Initiation fee, at most	Most in all after one month
R500	R75 (R86.25 with VAT)	R759.96
R1 000	R150 (R172.50 with VAT)	R1 378.17
R2 000	R265 (R304.75 with VAT)	R2 572.12
R5 000	R565 (R649.75 with VAT)	R6 099.42
R8 000	R865 (R994.75 with VAT)	R9 626.73

On small loans, the limit of 15% of the loan keeps the initiation fee lower.

An example

The most a lender could ask on a first loan of a thousand rand, paid back in one go after one month, with every charge at its limit:

Worked example: the most a lender could ask on a loan of R1 000 for one month

Charge	Amount
The loan	R1 000
Initiation fee, with VAT	R172.50
2 service fees, with VAT	R138
Interest at 5% for one month	R62.08
Credit life insurance	R5.59
Most in all	R1 378.17

This is an upper limit. It reads every unclear point in the lender’s favour, so the real limit for your loan can be lower.

How interest works

• Interest may be worked out on what you owe each day, and added to what you owe at most once a month.
• A quote for a short-term loan must show the interest as a rate per month.
• The Supreme Court of Appeal found that a lender may charge interest for a full 30 days only if the loan runs for 30 days or more. A shorter loan pays interest only for the days it runs.

The National Credit Act covers loans from informal moneylenders (mashonisas) too, not only loans from banks and registered lenders. A mashonisa who charges 30% or 50% a month is far above the limit of 5% a month.

How the check works

• Is it short-term credit? The check first looks at the amount and the months. A loan above R8 000, or longer than 6 months, has other limits, which the check doesn’t cover.
• Each charge. For each charge you type, the check says whether it is within the limit, within it only on a condition, or looks above it.
• VAT. A fee that is above the limit before VAT but within it with VAT is within the limit only if the fee includes VAT and the lender is registered for VAT. The check says so instead of calling it too high.
• First loan or not. The regulations don’t say whether loans from other lenders count. If you choose Not sure, the check uses the higher limit and tells you when a rate is within it only for a first loan.
• The most in all. The check adds every charge at its limit for a loan paid back in one go at the end: the initiation fee with VAT, a service fee for each month plus one for the part month a loan can start in, interest at the limit added to what you owe each month, and credit life insurance at its limit. Paying in instalments costs less.

What this tool can’t do

• It doesn’t check loans above R8 000 or longer than 6 months. Their limits are different, and some follow the repo rate.
• The amount limit is on what you owe at the start of the loan, which can include fees. Close to the limit, a fee can push a loan over it, and then other limits apply. The check uses the amount you borrow.
• It counts interest for whole months, so for a loan shorter than a month the real limit is lower.
• It doesn’t cover charges for paying late. While you are behind on payments, the interest, fees and charges that build up can’t add up to more than what you still owed on the loan itself when you fell behind (section 103(5) of the Act).
• It can’t tell whether the lender is registered or whether you can afford the loan.

If a loan looks too expensive

1. Ask the lender for the quote in writing before you sign, and ask it to explain each charge.
2. Check that the lender is on the National Credit Regulator’s register of credit providers. The link is under Official help below.
3. If the lender won’t fix a charge that looks above the limit, complain to the National Credit Regulator.
4. Don’t hand over your ID, bank card or SASSA card to a lender, or tell it your PIN. The Act makes a loan term unlawful if it has you hand these over or give your PIN (section 90(2)(l)).

“SASSA loans”

SASSA says it does not offer financial services such as funeral cover or loans. A “SASSA loan” is a loan from a private lender, and the limits on this page apply to it like any other short-term loan. Read our guide to SASSA scams before you share any details.

Next steps

Get your free credit report to see what you already owe, and compare low-cost bank accounts if fees are eating into your money.