Loan interest rates in South Africa
South African credit interest is capped by regulation under the National Credit Act, and the cap depends on the type of agreement. For short-term credit it is expressed per month; for longer unsecured credit it is expressed per year. Comparing the two directly is the most common mistake borrowers make.
What you need to know
On short-term credit, interest is charged on the original amount for each month of the term. R4 000 over three months at 5% is R600 — three lots of R200, not a compounding calculation. This is why annualising a short-term rate produces a headline figure that overstates what you actually pay on a loan you clear in weeks.
On longer unsecured credit, interest is charged on a reducing balance at an annual rate. Each instalment lowers the amount interest is calculated on, which is why a longer term costs proportionally less per month and considerably more in total.
Because the mechanics differ, the only honest comparison between the two is the total cost of credit in rand on each quote. That figure is the one every pre-agreement quote must show, and it is directly comparable regardless of how the rate is expressed.
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 R4 000 over 3 months actually costs
At the NCA maximum for a first short-term loan (5% a month). An illustration, not a quote.
| Line | Amount |
|---|---|
| Amount borrowed | R4 000 |
| Interest (5% × 3 months) | R600 |
| Initiation fee | R465 |
| Service fee (R60 × 3) | R180 |
| VAT on fees (15%) | R97 |
| Total you repay | R5 342 |
| Monthly instalment | R1 781 |
Cost of credit: R1 342 on R4 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.