When most of South Africans lives throws them in unexpected expenses, they run to the credit providers to borrow and fulfil their expenses. This usually ends up as a short-term loan which is repayed in a period of up to 6 months. However, because these loans are high-risk for the lender and involves amounts of money, they also carry interests rates in the market. To protect the consumers, the Nationalk Credit Regulator proposed the National Credit Act 34 of 2005 which regulates the provision of the credit by the credit providers.
South Africans gets to face high interest rate charges by the credit providers who doesn't follow or comply with the regulations by neglegence and ignorance to benefit from the consumers.
According to the latest regulations, the maximum interest rates on short-term loans are:
5% per month for the first loan granted to a consumer in a calendar year.
3% per month for any subsequent loans granted to the same consumer within that same calendar year.
This "staggered" rate is designed to discourage "debt spiraling," where a consumer takes out multiple high-interest loans in quick succession.
The above rates are not the only costs associated with short-term loans. The National Credit Act also regulates other fees to ensure lenders don't bypass interest rates by adding hidden costs to the credit agreements which are:
Initiation Fee - R165 per agreement, plus 10% of the amount in excess of R1,000 (capped at R1,050).
Service Fee - A maximum of R60 per month.
Credit Insurance - Lenders may require this, but the cost must be "reasonable" and based on the actual risk.
In a case where a credit provider gets to charge your an interest rate that is over 5% or prescribed interest rate, that credit provider is obviously operating outside the law and it is risky to borrow from them as they may confisicate your property in the exchange of the money you borrowed.
If you find yourself in a dispute with a credit provider over interest rates, you can report the matter to the National Credit Regulator via 0860 627 627, complaints@ncr.org.za, or Form 29 or to the Credit Association of South Africa via their official website at casa.co.za.