In short
The most common mistake is treating a private loan as an investment that matures. It is not. You are a lender rather than an investor, and the date in the agreement is the date money becomes due, not the date it arrives. Most private loans have a shape rather than a term, so there is often no fixed end date at all. Five other pictures are just as common and just as costly: that private means the informal high-cost lender; that registration is always required; that security guarantees recovery; that a quoted rate is what you earn; and that a late payment means the arrangement has failed. None of those is true. The picture was never supplied here, so people fitted private lending into the investment vocabulary they already had.
Nobody in South Africa was ever handed a correct picture of private lending. So people reach for the nearest one they have, and the nearest one is an investment product — because that is what South Africans are sold, and what the vocabulary around them is built for.
The result is that a lender and a borrower can sign the same agreement while holding two different ideas of what it says. Six of those wrong pictures come up again and again. Each one costs money, and each one is corrected by something already published on this site.
01 — The costWhy the wrong picture is expensive
A wrong mental model is not a vocabulary problem. It changes what you agree to, what you ask for, and what you do when a payment is late.
- You accept the wrong paperwork. Someone expecting an investment does not ask to see the loan agreement, the security documents or the borrower's figures, because investments do not usually come with those. Those documents are the entire protection.
- You misread silence. A lender expecting a maturity date treats the first late payment as a catastrophe or as nothing, depending on temperament. Neither reaction is the useful one, which is to find out why.
- You plan around money that is not coming yet. This is the one that does real damage. Capital committed elsewhere on the strength of a date is capital you may have to find from somewhere else.
- You cannot tell a good arrangement from a bad one. If you think all of this is an investment with a date, every arrangement looks the same, and the warning signs do not stand out because you are not looking at the things that differ.
02 — The big one“It matures on a date”
This is the most common and the most costly. It imports a whole set of expectations from a product that works differently.
| An investment | A private loan | |
|---|---|---|
| What you hold | A stake in something | A debt owed to you |
| What the date means | Value is realised and paid out | Money becomes due |
| If the date passes | Something has malfunctioned | The debt is now overdue, and a process starts |
| Who pays you | The product, from its own value | A person or company, from their own money |
| If they cannot pay | The value falls | You enforce, and enforcement takes time |
You are a creditor. That is a stronger position than an investor in one respect and a weaker one in another. Stronger, because you are owed a specific amount and you rank ahead of the owners. Weaker, because being owed money and being paid money are not the same thing, and the gap between them is filled with security, notice periods and sometimes court.
The clearest version of this is that a loan cannot make you more than the rate. An investment can multiply. A loan pays exactly what was promised or less, never more. Which asset class this actually is works through what that asymmetry means.
03 — The date“It runs for a set period”
Some private loans have a fixed term. Most of what is arranged in South Africa does not, and a lender who has been told an average is usually not aware that is what they have been told.
A private loan tends to have a shape rather than a term. The four common shapes are set out separately; only one of them has a date on which everything ends. In the others money returns as it is recovered, which is a process rather than an appointment.
Two things that sound like a term and are not
- An average recovery period. About eighteen months, usually is a statement about a book of past loans. It is not a statement about yours, and it is not a commitment by anybody.
- A review date or an expiry date on the paperwork. These often exist and they matter, but they are the date the arrangement is looked at again, not a date on which cash is guaranteed to appear.
04 — The word“Private lending means the informal lender”
Private describes where the money comes from. It does not describe how the lending is done, who it is done to, or whether it is above board.
A private loan is one funded by a private party — a person, a trust, a company, a fund — rather than by a bank taking deposits or by the public markets. That is the whole meaning of the word. It says nothing about the rate, the paperwork or the conduct.
| What people picture | What is actually being described |
|---|---|
| The mashonisa, the card behind the counter | One kind of lending that happens. Not the definition, and not what this site is about. |
| A scheme that collapsed and used the word | A label a promoter borrowed. Telling the two apart is a skill, not a matter of the name used. |
| Something unlawful or unregulated | Lending your own money is lawful, and several statutes reach it depending on how it is structured. |
| A private lender | Someone lending their own money. Usually against security. Always in writing. |
Elsewhere the same activity is called private credit or private debt, and it is organised enough that lenders have formed trade associations with published codes of conduct. The word is local; the activity is not. The terms and how they relate are set out separately.
05 — The rule“You always have to be registered”
This one runs in both directions, and both are wrong. Some people believe no registration is ever needed for a private arrangement. More believe it is always needed, and that lending without it is a criminal act.
The first question is not how much you lend. It is whether you are the credit provider at all. The duty falls on the party extending the credit under the agreement, and in South Africa most people who put capital into private lending are not that party. They fund an administrator, an originator or a platform that does the lending, and the registration belongs to that business. Your job there is to check it holds one.
If the agreement is in your name, the duty is yours — and then it depends on who is borrowing. Every loan to an individual is covered by the National Credit Act, whatever the size, and registration is required at any amount, because since 2016 the threshold has been R0. A loan to a business whose assets or turnover reach R1 million is not covered at all, and nor is a loan of R250 000 or more to a smaller business.
And one that catches people: buying the rights to a loan somebody else wrote makes you a credit provider in your own right. The Act says so expressly.
The full working, including the cases that catch people out, is at do you need to register as a credit provider. Two further boundaries are worth knowing about early: taking money from other people in order to lend it on is deposit-taking and needs a banking licence, and FICA duties apply to lenders the National Credit Act does not reach.
06 — The comfort“It is secured, so I will get my money back”
Security is the most misunderstood thing in private lending, because the word does most of the damage by itself.
A mortgage bond does not hold your money. It gives you a right to a process — a claim ranking ahead of other creditors against a particular asset, which you realise by taking steps that cost time and money. What it is worth depends on what the asset sells for, who ranks ahead of you, and how long the process takes.
- Secured is not insured. Nobody compensates you. There is no fund behind the loan.
- Ranking decides who actually gets paid. Being secured behind a bank on the same property can be worth very little.
- Enforcement is a sequence, not an event. Where the Act applies you must give notice and wait before you can enforce, and that is before any court process begins.
- The valuation is the whole thing. Security priced off a number nobody independent has tested is a comfort rather than a protection.
What the security actually does for you works through each of these.
07 — The number“The rate I was quoted is what I earn”
A quoted private lending rate is a contractual rate before anything has happened. It is not a return, and it is not comparable to a return quoted by a fund, which is a past result after costs.
Between the quoted rate and what reaches you sit four things, and none of them is optional.
- Loans that do not perform. One loan in a small book going bad does not reduce your return, it removes a chunk of your capital. A rate only compensates for that risk across enough loans for the arithmetic to work.
- Costs. Legal drafting, bond registration, valuations, administration, and the cost of recovery if it comes to that.
- Time not lent. Capital waiting between loans earns nothing, and the gaps are longer than people expect.
- Tax. Interest is income. What the law lets you charge in the first place is a separate question, dealt with in interest rate caps and the in duplum rule.
08 — In fairnessWhere the wrong picture came from
None of this is the reader's fault, and the list above is not a list of foolish beliefs. Every one of them is a reasonable inference from the information that was available.
South Africans are sold investment products. The vocabulary that surrounds money here — maturity, term, return, product — is investment vocabulary, and when something new arrives with no vocabulary of its own, people fit it into the words they already have. That is what has happened, and it has happened in the absence of anybody publishing the alternative.
Which is what this site is for. If you take one thing from this page, take the first callout: due is not the same as arrives. Most of the rest follows from it. What private lending actually is is the place to start over properly.