Initiation and service fees explained
Two fees apply to almost every South African credit agreement, and on small loans they cost considerably more than the interest. Both are capped by regulation, both are published excluding VAT, and understanding how each is structured tells you exactly how to borrow more cheaply.
What you need to know
The initiation fee is charged once, when the agreement is set up. It is R165 on the first R1 000 you borrow, plus 10% of every rand above that, capped at R1 050 before VAT. Because that cap is only reached at R9 850, it never binds on a short-term loan, which is limited to R8 000.
Being charged once is the fee’s defining characteristic, and it produces the most useful borrowing rule there is: two loans cost two initiation fees. If you know you will need R2 000 now and R2 000 next month, one R4 000 loan is meaningfully cheaper than two R2 000 loans.
The service fee is R60 a month before VAT, charged for every month the agreement runs regardless of the outstanding balance. It is what makes a longer term more expensive than the interest alone suggests, and what makes settling early on a longer loan genuinely worthwhile.
Both caps are published excluding VAT. With 15% VAT the service fee costs you R69 a month and the initiation cap costs R1 207,50. Quotes should show the VAT-inclusive figure — if one shows exactly the cap numbers, ask whether VAT is still to be added.
What the National Credit Act allows a lender to charge
Maximums for short-term credit under the National Credit Act 34 of 2005. A registered lender may charge less — never more.
| Charge | Legal maximum | How it works |
|---|---|---|
| Interest — first loan | 5% per month | Applies to your first short-term loan in a calendar year. |
| Interest — repeat loan | 3% per month | Applies to further short-term loans taken in the same calendar year. |
| Initiation fee | R165 + 10% above R1 000, capped at R1 050 | Charged once, on the amount you borrow. Excludes VAT. |
| Service fee | R60 per month | Charged monthly for the life of the loan. Excludes VAT. |
| VAT | 15% on the fees | Added to the initiation and service fees — not to interest. |
Fee caps are published excluding VAT. With 15% VAT a R1 050 initiation fee costs you R1 207,50 and a R60 service fee costs R69 a month. Always compare the VAT-inclusive figure on your pre-agreement quote.
What R1 000 over 1 month actually costs
At the NCA maximum for a first short-term loan (5% a month). An illustration, not a quote.
| Line | Amount |
|---|---|
| Amount borrowed | R1 000 |
| Interest (5% × 1 month) | R50 |
| Initiation fee | R165 |
| Service fee (R60 × 1) | R60 |
| VAT on fees (15%) | R34 |
| Total you repay | R1 309 |
| Monthly instalment | R1 309 |
Cost of credit: R309 on R1 000 borrowed. Figures are calculated at the statutory maximum — your own quote may be cheaper, and must be shown to you in full before you sign.
Related
Sources and last checked
- National Credit Act 34 of 2005 and its regulations — Government, as at 10 August 2026.
Page last checked 10 August 2026. Statutory caps and lender terms change — confirm anything you intend to rely on with the provider or the National Credit Regulator. Found something wrong? Tell us and we will correct it.