Understanding Interest Rates on Credit Agreements

This Festive Season

By André Donnelly-Bornman, Director of Commercial Law at DONNELLY-BORNMAN LAW Inc.

As we approach the festive season, many South Africans are preparing to make purchases, whether for gifts, holiday trips, or home upgrades. While it is a time of joy and celebration, it is also important to make informed financial decisions—especially if you are considering buying on credit. Knowing the maximum interest rates credit providers can charge is essential to ensure you are not caught off guard later.

Under South Africa’s National Credit Act (NCA), all credit agreements are regulated to protect consumers from excessive interest rates and fees. These rates are tied to the South African Reserve Bank’s repurchase rate (repo rate), which is adjusted periodically. As of now (November 2024), the repo rate is 7.75%.

What Does This Mean for You?

When entering into a credit agreement, be it for a new home appliance or a personal loan, it is crucial to understand the interest rate and how it changes your repayment amount. For instance:

• If you are financing a home, the maximum rate for a mortgage is currently 22.05% per year.

• A short-term loan, such as a payday loan, can have an interest rate of up to 5% per month.

While these rates are capped, registered credit providers may still charge other fees on top of the interest rates, such as initiation and service fees, which can further affect the overall cost.

Tips for Managing Credit During the Festive Season

Understand the Costs: Always ask your credit provider for a clear breakdown of the interest rate, fees, and total repayment amount before signing any agreement.
Shop Around: Not all credit providers charge the maximum allowable rate. Compare different options to find the most favourable terms.
Borrow Responsibly: Only take credit for items or services you genuinely need and can afford to repay within the agreed terms.
Consult a Professional: If you are unsure about the terms of a credit agreement, speak to your attorney for advice.

Celebrate Without Regret

The festive season is about creating memories, not financial stress. By understanding your rights and responsibilities when entering into credit agreements, you can enjoy the season without unexpected surprises.

At DONNELLY-BORNMAN LAW Inc., we specialise in providing clear and practical legal advice. Should you need help with any credit agreements or financial concerns, feel free to reach out to our Bloemfontein office.

Wishing you a joyful and financially savvy festive season!

This post was written by

André Donnelly-Bornman

Director of Commercial Law

DONNELLY-BORNMAN LAW Inc.

Bloemfontein Attorneys

dbinc.co.za

FB - @donnelleybornmanlaw | LinkedIn - @donnelly-bornman-law | IG - @donnellybornman

Disclaimer: The information in this blog is subject to change. Always consult with your attorney for the latest and most accurate information relevant to your circumstances.

Some images in the article are not property of SheCreates.

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