The interest rate is only part of what a loan costs. In South Africa, initiation fees, monthly service fees and credit life insurance can add a lot to your repayments. Here's how to read a loan offer – and what the law allows.
What is the interest rate?
The interest rate is what the lender charges for lending you money, expressed as a percentage per year. It can be:
- Fixed: the rate stays the same for the whole term
- Variable: linked to the prime lending rate, changing when the SARB adjusts the repo rate
What the National Credit Act allows
| Cost | Legal maximum |
|---|---|
| Interest – unsecured loans | Repo rate + 21% per year (currently 28.25%) |
| Interest – short-term loans (up to R8 000, max 6 months) | 5% per month on a first loan, 3% on further loans in the same year |
| Initiation fee (once-off) | R165 + 10% of the amount above R1 000, max R1 050 (plus VAT) |
| Monthly service fee | R60 per month (plus VAT) |
Credit life insurance
Most lenders require credit life insurance on longer loans. It covers your repayments if you pass away, become disabled or lose your income. The cost is capped by law, and you have the right to use an existing policy instead of the lender's – which can save you money.
The total cost of credit – the number that matters
The total cost of credit is everything you pay on top of the amount you borrow: interest, the initiation fee, service fees and insurance. It's the best number for comparing loans.
Your right to a quotation
Before you sign, a registered lender must give you a pre-agreement statement and quotation showing the instalment, interest rate, all fees and the total amount you'll repay. The quotation is binding for five business days.
A practical example
A loan of R50 000 at 28.25% per year, including the initiation fee and monthly service fee:
| 36 months | 60 months | |
|---|---|---|
| Monthly instalment | R2,194 | R1,671 |
| Total repayment | R78,986 | R100,267 |
| Total cost of credit | R28,986 | R50,267 |
The longer term lowers the instalment by R523 per month, but costs R21,281 more in total.
How to compare offers
- Compare offers for the same amount and term
- Look at the total cost of credit and the instalment together
- Check whether credit life insurance is included – and if you can use your own
- Choose the shortest term you can comfortably afford
Conclusion
A low rate is a good start, but the total cost of credit tells you what a loan really costs. With Lendova you can compare offers side by side and choose the best overall terms.