In short
A quoted rate is the best case on one loan if everything happens on time. What reaches you is that rate less four things: loans that do not perform, costs, capital sitting idle between loans, and tax.
And the same rate can describe two different amounts of money, because simple and compound interest are quoted interchangeably by people who should know better. Where the National Credit Act applies, the rate is also capped — by a formula, not by the figures most sources still quote.
01The four things between the rate and you
| The leak | What it takes | Who mentions it |
|---|---|---|
| Loans that do not perform | Capital, not just interest | Rarely, and never with a number |
| Costs | Attorneys, valuations, searches, recovery | Sometimes, as an afterthought |
| Idle capital | The months between loans, earning nothing | Almost never |
| Tax | Interest is income, taxed at your marginal rate | Sometimes, vaguely |
None of the four is a scandal. They are the ordinary mechanics of lending. What is misleading is quoting the gross rate as though it were the net outcome, which is close to universal in how this market is described.
On tax: interest is taxed as income, not as a capital gain, and South African taxpayers have an annual interest exemption that matters more at small amounts than large. This is not tax advice and your own position depends on facts no page can know.
02One rate, two different amounts
R100 000 at 15% a year for three years. Both of these are called 15%.
| How it is calculated | What you receive | Difference |
|---|---|---|
| Simple — 15% of the original amount each year | R145 000 | — |
| Compound, annually — interest earns interest | R152 087.50 | R7 087.50 |
Seven thousand rand on one modest loan, from a word that was never specified. Ask which it is, and ask it about the loan in front of you rather than in general — an accrual loan where nothing is paid across until the end is exactly where the distinction bites hardest.
03What happens to interest after a default
Where the Act applies, interest does not accrue indefinitely. Once the borrower is in default, the fees, interest and charges accruing during that default may not in total exceed the unpaid balance of the principal debt as at the date the default began.
04The caps, where the Act applies
The maximum prescribed rates are set by regulation and expressed as a formula based on the ruling South African Reserve Bank repurchase rate, written here as RR. They move when it moves.
| Type of agreement | Maximum prescribed rate |
|---|---|
| Mortgage agreements | RR + 12% per year |
| Credit facilities | RR + 14% per year |
| Unsecured credit transactions | RR + 21% per year |
| Short-term credit transactions | 5% per month on a first loan, 3% per month on later loans in the same year |
| Other credit agreements | RR + 17% per year |
| Incidental credit agreements | 2% per month |
Two further points. These caps apply only where the National Credit Act governs the agreement — lending to a juristic borrower outside the Act is not subject to them. And a cap is a ceiling, not a target: nothing about a lawful rate makes it an appropriate one for a given borrower.
05And only the listed charges
Lesson ten set out the closed list in section 101(1): principal, initiation fee, service fee, interest, credit insurance, default administration charges and collection costs. Anything else may not be charged, and most of those items are capped by regulation.
So on a covered loan your total return has two ceilings, not one:
- the rate cap, by agreement type; and
- the closed list, which limits what else may be added to it.
Next we put a real number through all of it.