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Have you ever wondered why a credit provider charges interest and fees on a short term loan? How do you know if what you are paying is fair?

As per the South African law, the National Credit Regulator (NCR) has put together an act that stipulates how much a credit provider can charge a borrower. This means a credit provider can’t just ask you to pay ridiculous amounts on fees and intereston a short term loan, if they do this, they will get into big trouble.

How does interest work?

Interest is the money that a lender charges on the amount of credit loaned over a set period of time. The rate of the interest is calculated by using a percentage. This rate forms part of the agreement that the consumer signs. In other words, the borrower is entitled to know what the repayment of the loan will be beforehand.

The maximum interest rate that the NCR allows credit providers to charge is different for every type of loan. For example: A loan of R8000 up to 6 months has a maximum interest rate of 5% per month. Per annum, the maximum interest rate allowed is 60%.

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What other fees do I pay?

Credit providers are allowed to charge an initiation fee on aa short term loan if the borrower agrees to enter into an agreement with them. But, the lender must give the consumer the option of paying this fee separately so that no interest is charged on it.

A service fee is charged to cover the administration costs of the credit agreement. This fee can be charged on a monthly or annual basis or even per transaction depending on the type of credit.

Other costs to take note of:

If a borrower is in arrears with their short term loan, the credit provider is allowed to charge the borrower with default admin fees and collection costs.

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