Interest versus fees: which costs more
On a small, short South African loan, most of what you pay is fee rather than interest. On a larger, longer one, interest dominates. Knowing which side of that crossover you are on tells you exactly which lever reduces your cost.
What you need to know
Borrow R500 for a month and the interest at the cap is R25, while the fees are R225 before VAT. Nearly ninety percent of the cost of credit is fee. Shopping for a lower rate here is close to pointless; avoiding a second loan is what saves money.
Borrow R8 000 for six months and the interest at the cap is R2 400 against fees of R1 225 before VAT. Now the term is the dominant variable, and every month you can cut off the end saves R400 of interest plus a service fee.
The practical rules follow directly. Where fees dominate: consolidate your need into one agreement rather than several. Where interest dominates: take the shortest term whose instalment you can genuinely meet.
What R500 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 | R500 |
| Interest (5% × 1 month) | R25 |
| Initiation fee | R165 |
| Service fee (R60 × 1) | R60 |
| VAT on fees (15%) | R34 |
| Total you repay | R784 |
| Monthly instalment | R784 |
Cost of credit: R284 on R500 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.
What R8 000 over 6 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 | R8 000 |
| Interest (5% × 6 months) | R2 400 |
| Initiation fee | R865 |
| Service fee (R60 × 6) | R360 |
| VAT on fees (15%) | R184 |
| Total you repay | R11 809 |
| Monthly instalment | R1 968 |
Cost of credit: R3 809 on R8 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.