How Loan Interest Is Calculated in South Africa 2026: Simple vs Compound, APR Explained
A lender quotes you "5% per month" — sounds reasonable. But that's 60% per year. On R10,000, you'd pay R6,000 in interest alone over 12 months. Understanding how interest works is the single most important skill for any borrower. Here's everything, with real Rand calculations.
Simple vs Compound Interest
Simple Interest
Interest calculated on the original amount only. Doesn't compound.
R10,000 × 5%/mo × 3 months = R1,500
Used by: Short-term lenders (Wonga, Fasta, Lime)
Compound (Reducing Balance) Interest
Interest calculated on remaining balance. Decreases as you pay down the loan.
Month 2: R9,800 × 2% = R196
Month 3: R9,600 × 2% = R192
Used by: Banks (Capitec, FNB, Standard Bank, Nedbank)
Types of Interest Rates in SA
| Rate Type | What It Means | Example |
|---|---|---|
| Nominal Rate | Advertised annual rate, not accounting for compounding frequency | 24% per annum (nominal) |
| Effective Rate | True annual rate including compounding effects | 26.82% per annum (effective) |
| APR (Annual Percentage Rate) | Total cost including interest + ALL fees, annualised | 29.5% APR (always the highest number) |
| Monthly Rate | Rate per month (used by short-term lenders) | 5% per month = 60% per annum |
| Prime Rate | SARB repo rate + 3.5% — base for bank loans | Currently 11.75% (2026) |
R10,000 Loan — Real Cost Comparisons
| Lender Type | APR | Term | Monthly Payment | Total Interest + Fees | Total Repaid |
|---|---|---|---|---|---|
| Capitec | 20% | 12 months | R928 | R1,136 | R11,136 |
| Capitec | 20% | 36 months | R372 | R3,392 | R13,392 |
| FNB | 27.75% | 12 months | R966 | R1,592 | R11,592 |
| FNB | 27.75% | 36 months | R420 | R5,120 | R15,120 |
| Wonga | 60% | 3 months | R4,200 | R2,600 | R12,600 |
| Wonga | 60% | 6 months | R2,400 | R4,400 | R14,400 |
Capitec/FNB: reducing balance. Wonga: simple interest + initiation + service fees. The 6-month Wonga loan costs more than 36-month FNB loan despite being 30 months shorter.
NCA Interest Rate Caps (2026)
| Credit Type | Maximum Rate Formula | Current Max (2026) |
|---|---|---|
| Short-term (<R8,000, 1-6 months) | 5% per month (fixed) | 60% p.a. |
| Unsecured (personal loans) | Repo × 2.2 + 20% | ~27.75% p.a. |
| Credit cards | Repo × 2.2 + 10% | ~17.75% p.a. |
| Mortgage loans | Repo × 2.2 + 5% | ~12.75% p.a. |
Repo rate set by SARB Monetary Policy Committee. Current repo rate: 7.75% (subject to change). Any lender charging above these caps is violating the NCA.
NCA Fee Caps
Frequently Asked Questions
What is the difference between interest rate and APR?
Interest rate is just the cost of borrowing money (e.g., 5% per month). APR (Annual Percentage Rate) includes ALL costs: interest + initiation fee + service fees + credit life insurance, annualised over the loan term. APR is always higher than the interest rate alone. In South Africa, lenders must show you the APR before you sign — this is your true cost of borrowing and the best number for comparing lenders.
What is the maximum interest rate in South Africa?
The NCA caps rates based on loan type: Short-term loans (under R8,000, 1-6 months): 5% per month = 60% per year. Unsecured credit (personal loans): Repo rate × 2.2 + 20% per year (currently ~27.75%). Mortgage loans: Repo rate × 2.2 + 5% per year. Credit cards: Repo rate × 2.2 + 10% per year. The repo rate set by SARB determines the base — as it moves, all caps shift.
How much interest will I pay on a R10,000 personal loan?
It depends on rate and term: At 20% APR for 12 months: ~R1,117 total interest (monthly payment R928). At 27.75% APR for 12 months: ~R1,594 total interest (monthly payment R966). At 27.75% APR for 36 months: ~R5,109 total interest (monthly payment R420). At 60% APR for 3 months (short-term): ~R1,800 total interest + fees. Longer terms mean lower monthly payments but significantly more total interest.
Is simple or compound interest used on SA loans?
Most SA personal loans use reducing-balance (compound) interest — interest is charged on the remaining balance, so it decreases as you pay down the principal. Short-term loans (Wonga, Fasta, Lime) use simple interest — 5% flat on the original amount per month. Credit cards use compound interest on the outstanding balance, which is why minimum payments are dangerous — most of it goes to interest.
What fees are added on top of interest?
Under the NCA, lenders can charge: (1) Initiation fee — once-off: R165 max for loans under R1,000, or up to 15% of the loan amount (max R1,207.50 incl. VAT) for larger loans. (2) Monthly service fee — R69 max per month. (3) Credit life insurance — max R4.50 per R1,000 per month (optional but often added). (4) Default/collection fees — if you miss payments (capped by NCA). No other fees are allowed.
Responsible Lending Notice
Interest rate caps are set by the National Credit Act regulations, updated periodically by the Department of Trade, Industry and Competition. Verify current caps at NCR.org.za.
The SARB Monetary Policy Committee announces repo rate changes 6 times per year. Changes affect personal loan caps within 30 days.
NCR Consumer Line: 0860 627 627 | www.ncr.org.za
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