“Interest is the amount that a credit provider charges a consumer on the outstanding balance of a credit agreement,” explains the National Credit Regulator (NCR).
The NCR adds that the Act regulates interest rates by specifying maximum interest rates that credit providers may charge consumers for various credit agreements.
Maximum interest rates
| Sub-sector | Maximum prescribed interest rate | Total |
| Mortgage agreements | [(Repo rate x 2.2) + 5%] per year | 17.65% |
| Credit facilities (which includes credit cards, and overdrawn cheque accounts.) | [(Repo rate x 2.2) + 10%] per year | 22.65% |
| Unsecured credit transactions (which includes student loans, payday loans, medical bills, and court-ordered child support.) | [(Repo rate x 2.2) + 20%] per year | 32.65% |
| Developmental credit agreements: | ||
| for the development of a small business | [(Repo rate x 2.2) + 20%] per year | 32.65% |
| for low income housing (unsecured) | [(Repo rate x 2.2) + 20%] per year | 32.65% |
|
Short term credit transactions (which is a loan that at the beginning of the agreement does not exceeding R8,000; and in terms of which the whole amount is repayable within a period not exceeding six months.) |
5% per month | |
| Other credit agreements | [(Repo rate x 2.2) + 10%] per year | 22.65% |
|
Incidental credit agreements (Incidental credit agreement, for example, is accounts for municipal services, such as water or electricity, and sales of clothing where no interest is charged provided that the account is paid by a certain date. For more information on incidental credit, click here.) |
2% per month |
The Repo rate is currently 5.75%. Therefore, for example, the maximum a creditor could ask on a mortgage agreement is (0.0575 x 2.2) + 0.05 = 0.1765. Times that by 100, to make it into a percentage again, is 17.65%.
So, on a mortgage agreement, the maximum amount of interest the creditor can changed you in 17.65%.
Initiation fee
The initiation fee is a fee that a credit provider charges a consumer for entering into a credit agreement with that consumer, explains the NCR.
“The credit provider must give the consumer the option of paying this fee separately upfront and in doing so, no interest may be charged on the fee,” said the NCR.
The Act also regulates initiation fees by specifying the maximum initiation fee that consumers may be charged. See the table below.
Maximum prescribed initiation fee
| Sub-sector | Initiation fee |
| Mortgage agreements |
(a) R1,000 per credit agreement, plus, 10% of the amount of the agreement in excess of R10,000 (b) But never to exceed R5,000. |
| Credit facilities | (a) R150 per credit agreement, plus, 10% of the amount of the agreement in excess of R1,000 (b) But never to exceed R1,000. |
| Unsecured credit transactions | (a) R150 per credit agreement, plus, 10% of the amount of the agreement in excess of R1,000 (b) But never to exceed R1,000. |
| Developmental credit agreements: | |
| for the development of a small business | (a) R250 per credit agreement, plus, 10% of the amount of the agreement in excess of R1,000 (b) But never to exceed R2,500 |
| for low income housing (unsecured) | (a) R500 per credit agreement, plus, 10% of the amount of the agreement in excess of R1,000 (b) But never to exceed R2,500. |
| Short term credit transactions | (a) R150 per credit agreement, plus, 10% of the amount of the agreement in excess of R1,000 (b) But never to exceed R1,000. |
| Other credit transactions | (a) R150 per credit agreement, plus, 10% of the amount of the agreement in excess of R1,000 (b) But never to exceed R1,000. |
| Incidental credit agreements | N/A |