Which credit category does your agreement fall into?

The cap that applies to you depends on this, and getting the category wrong changes the answer completely.

Regulation 42 sets seven categories of credit, each with its own interest ceiling. Before you can tell whether a rate is lawful, you have to know which one your agreement is. The categories are defined by what the credit is for and how it is structured, not by what the lender calls its product.

The seven categories

Mortgage agreements

Credit secured over immovable property. A home loan is the ordinary case. This category carries the lowest margin over the repo rate, because the property secures the debt.

Credit facilities

Revolving credit where you draw down and repay repeatedly rather than borrowing a fixed sum once. Credit cards, store cards and overdraft facilities are the common examples.

Unsecured credit transactions

A fixed amount lent without security, repaid over an agreed term. Most personal loans sit here. This is the category people most often mean when they ask about the maximum legal interest rate.

Short-term credit transactions

Small loans over a short period. Payday lending generally falls here. This category is capped at a fixed percentage per month rather than a repo-linked annual rate, and the cap is lower for a second or later loan taken in the same calendar year. If you are asking about a loan from an informal lender, start with the short-term credit guide.

Developmental credit agreements

Credit extended under a developmental credit licence, typically for education, housing development or growing a small business. It carries the highest margin, on the basis that the lending is riskier and serves a policy purpose.

Incidental credit agreements

Not a loan at first. This is what an ordinary account becomes when a fee or interest is added because you paid late. A municipal or medical account that starts charging interest after the due date is the usual example.

Other credit agreements

The catch-all for regulated agreements that do not fit the categories above.

If you are between two categories

The distinction that matters most in practice is between unsecured credit and short-term credit, because their caps are structured completely differently: one is a repo-linked annual rate, the other a fixed monthly rate. Size and term are what separate them. A small loan repaid over a few months is likely short-term; a larger amount over a longer term is likely unsecured.

The agreement itself usually states which category it was written under. That is the place to look first.

Questions

Is a personal loan unsecured credit or short-term credit?

Usually unsecured credit, if it is a meaningful amount repaid over months or years. Short-term credit covers small loans over a short period, which is where most payday lending sits. The two have completely different caps, so the distinction matters.

Which category is a credit card?

A credit facility. It is revolving credit you draw and repay repeatedly, rather than a fixed sum borrowed once.

What is incidental credit?

An ordinary account that becomes a credit agreement because interest or a fee was added for late payment. A municipal bill or a doctor's account that starts charging interest after the due date is incidental credit.

Does my agreement say which category it is?

It usually does, and that is the first place to check. The category determines the legal cap, so lenders generally state it.

Related

The maximum legal interest rate in South AfricaWhat a short-term lender may legally chargeThe date you signed is what sets your limit