The maximum legal interest rate in South Africa

There is no single number. The limit depends on what kind of credit you took, and on the day you signed.

South African law caps the interest rate on credit agreements. The cap comes from Regulation 42 of the National Credit Act, and it is not one rate: it is a different rule for each category of credit, and for most categories it moves with the repo rate.

Two things decide the limit that applies to you. First, which of the seven credit categories your agreement falls into. Second, the date the agreement was concluded, because for five of those categories the cap is locked to the repo rate in force on that day.

How the cap is built

For most credit, the cap is the repo rate plus a fixed margin, expressed per year. The margins are set in the regulation and do not change with the repo rate:

• Mortgage agreements: repo plus 12 percentage points
• Credit facilities, such as a credit card or store card: repo plus 14
• Unsecured credit, such as a personal loan: repo plus 21
• Developmental credit: repo plus 27
• Other credit agreements: repo plus 17

Two categories work differently. Short-term credit (small, short loans, the category most payday lending falls into) and incidental credit agreements are capped at a fixed rate per month, and those caps do not move with the repo rate at all.

Why the date you signed matters more than today's rate

This is where most people get it wrong, and it is worth being precise about.

The cap is fixed at the repo rate in force on the day the agreement was concluded. It does not float afterwards. If the Reserve Bank raises or cuts the repo rate a month later, your agreement's legal ceiling does not move with it.

So working out whether a loan was lawful means knowing what the repo rate was on a specific past date, not what it is now. Using today's rate to judge an agreement signed three years ago will give you the wrong answer, and it is the single most common mistake in this calculation.

What the interest cap does not cover

The rate cap applies to interest. It is not the whole cost of credit, and an agreement can sit under the interest cap while still being expensive or unlawful for other reasons.

• Initiation fees and monthly service fees are capped separately, under different parts of the regulation.
• The in duplum rule limits how much unpaid interest can accumulate, separately from the rate.
• Affordability. A lender must assess whether you could afford the agreement, and failing that is reckless lending regardless of the rate charged.

A lawful interest rate does not make an agreement lawful overall, and this page does not assess anything beyond the rate.

Questions

What is the maximum interest rate a lender can charge in South Africa?

It depends on the type of credit and the date the agreement was concluded. For most categories the cap is the repo rate on that date plus a fixed margin set by Regulation 42: 12 percentage points for mortgages, 14 for credit facilities, 21 for unsecured credit, 27 for developmental credit and 17 for other agreements. Short-term and incidental credit are capped per month instead.

Does the limit change when the repo rate changes?

Not for an agreement already signed. The cap is fixed at the repo rate in force on the date the agreement was concluded and stays there for the life of the agreement. Repo changes affect new agreements, not existing ones.

Is a loan illegal if the interest is above the cap?

Charging above the Regulation 42 cap is unlawful. What follows from that is a legal question that depends on the agreement and the circumstances, and it is worth getting advice from the National Credit Regulator or an attorney rather than acting on a calculation alone.

Do these caps apply to every loan?

They apply to credit agreements regulated by the National Credit Act. Some arrangements fall outside the Act, and the caps in the current Regulation 42 table apply to agreements concluded on or after 6 May 2016. Older agreements fall under the previous regime.

Where do these limits come from?

Regulation 42 of the National Credit Act regulations, as amended by Government Notice 1080 of 6 November 2015, which took effect on 6 May 2016.

Related

Which credit category does your agreement fall into?The date you signed is what sets your limitWhat a short-term lender may legally chargeIf you think your interest rate is above the legal limit