In short
R100 000 at 15% for three years. Shown three ways — interest paid monthly, interest rolled up, and capital returned on recovery rather than on a date — the same loan produces three different outcomes.
Then the same loan with one default in a book of five, which takes a quoted 15% down to under 10% a year. Every figure here is illustrative arithmetic on a round number. None of it is a rate anybody is offering.
01One loan, three shapes
R100 000 lent at 15% a year. The borrower performs in all three. Only the shape differs.
| Shape | While it runs | At the end | Total received |
|---|---|---|---|
| Interest paid monthly | R1 250 a month for 36 months = R45 000 | R100 000 capital | R145 000 |
| Interest rolled up, compounded annually | Nothing paid across | R152 087.50 | R152 087.50 |
| Interest rolled up, simple | Nothing paid across | R145 000 | R145 000 |
Same rate, same borrower, same three years. The gap between the second and third rows is R7 087.50, and it comes entirely from a word nobody specified. This was lesson thirteen's point; here it is in rands.
The first row has a second advantage the table does not show. Money paid across each month is money you have. Money accruing is money the borrower still owes — and lesson nine explained what collecting it involves.
02Now the capital arrives late
Same loan, interest paid monthly, but the capital comes back at month 41 instead of month 36 — a recovery rather than a date, which lesson six said is the common case.
| On time | Five months late | |
|---|---|---|
| Interest received | R45 000 | R45 000, if interest stopped at the due date |
| Months your money was out | 36 | 41 |
| Return per year | 15% | 13.2% |
Nothing went wrong. Nobody defaulted. The borrower paid in full. Five months of ordinary delay cost 1.8 percentage points a year — and if the agreement did not provide for interest to continue after the due date, that is simply gone.
03Now one of them fails
Same R100 000 loan, at 15%, interest paid monthly. The borrower pays for a year and then stops. You enforce. The security realises R70 000 eighteen months later, and recovery costs R18 000.
| Amount | |
|---|---|
| Interest received, months 1–12 | R15 000 |
| Gross recovery at month 30 | R70 000 |
| Less recovery costs | −R18 000 |
| Total received on R100 000 | R67 000 |
| Outcome | −R33 000, over 30 months |
A loss of a third of the capital on a secured loan where something was actually recovered. This is not a worst case. The worst case is that the security realises nothing and the costs are still spent.
04Five loans, four good, one bad
R500 000 across five loans of R100 000 each at 15%, interest paid monthly, three years. Four perform. The fifth is the one above.
| Amount | |
|---|---|
| Interest from the four performing loans (4 × R45 000) | R180 000 |
| Outcome on the fifth | −R33 000 |
| Net gain over three years | R147 000 |
| On R500 000 of capital | 29.4% over three years |
| Per year | 9.8% |
05The last two deductions
Two things the table above still does not include.
- Idle capital. If each loan takes three months to place, your R500 000 was committed for 39 months rather than 36. The same R147 000 over 39 months is roughly 9.0% a year.
- Tax. Interest is taxed as income at your marginal rate, with an annual exemption that matters more at small amounts than large. Whatever is left after that is the actual answer to what did I earn?
Which is why the honest version of the question is never what is the rate? It is what reached my account, and over how long was my money committed to get it?
Every figure in this lesson is arithmetic on a round number, chosen because it is easy to follow. It is not a forecast, not a rate on offer, and not an indication of what any particular loan would produce.