What Interest Rate Should You Be Paying?

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What’s The Maximum They Can Charge?

Many consumers find themselves wanting to make use of credit and wonder how much they could end up paying to access credit?

In the case of loans and bonds, there may be an initiation fee but other accounts like a clothing account or credit card might have a monthly service fee or annual fee.

Interest

In all cases, however, credit providers make money by charging interest. There are 3 main types of credit that most people use these days in South Africa:

  1. Mortgages (also called a bond)
  2. Unsecured credit (like big loans)
  3. Credit Facilities (these you tend to never really pay off and can use over and over – like an overdraft)

The National Credit Act (NCA) & regulations limit how much interest credit providers can charge you for each type of credit. The maximum percentage you can be charged is linked to what is called the Repo Rate and the banks’ Prime Rate. 


For example,  the banks can charge you the repo rate plus 12% for your bond. They are not allowed to charge you more. If they do they are breaking the law and you can report them and they can face huge fines.

‘The National Credit Act (NCA) & regulations limit how much interest credit providers can charge you for each type of credit’

Many smaller unregistered credit providers (loan sharks) charge very high interest rates that are more than that allowed in the law. This is obviously illegal and they can be reported. This can lead to the National Credit Regulator (NCR)  investigating them or even the SAPS raiding their offices and arresting people.

What are The Current Maximums?

  1. Bonds (called Mortgages): 15.5% 
  2. Unsecured credit (like big loans): 24.5%
  3. Credit Facilities: 17.5%

Remember just because these are the maximum interest rates that the banks and other credit providers can charge it does not mean they will charge the maximum.

‘it does not mean they will charge the maximum’

To draw clients in or to reward people with a good credit score some credit providers will sometimes offer lower interest rates (or drop monthly account fees or loan initiation fees). This has very much been the case with vehicle finance recently as car sales have plunged to very low levels.

When considering making use of credit be sure to ask for a full comprehensive quote on what it is going to cost you both monthly and overall. This will help you decide on the best deal (shop around) and make sure you can afford the credit and the overall cost.