Guide to maximum prescribed interest rate

The Prescribed Rate of Interest Act (55 of 1975), sets the maximum rate of interest that can be charged on over-due payments, and is also used in court orders relating to damages claims.

“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

Source: National Credit Regulator, correct as of 8 May 2015

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

Source: National Credit Regulator, correct as of 8 May 2015