“I only need R5,000 until things settle.” It is one of the most common reasons South Africans apply for a short-term loan. But the amount you receive is not the amount you pay back, and the gap between the two is where many borrowers get caught out. Here is a simple worked example so you can see what is really going on.
The example
Say you borrow R5,000 and repay it in six equal monthly instalments. We will look at two annual interest rates. These figures are illustrations only and exclude the initiation fee, monthly service fee and credit life insurance that registered lenders may also charge.
| Annual interest rate | Monthly instalment | Total repaid | Interest paid |
|---|---|---|---|
| 24% | R892.63 | R5,355.77 | R355.77 |
| 36% | R922.99 | R5,537.93 | R537.93 |
A 12-percentage-point difference in the rate adds roughly R182 to the cost of this one small loan. On a bigger loan or a longer term, that difference grows quickly.
Remember: fees come on top of interest. A lender can quote a modest interest rate and still end up expensive once initiation and service fees are added. Always ask for the total cost of credit in rands.
Why the term matters as much as the rate
A longer term lowers your monthly instalment, which feels easier. But interest is charged for longer, so you pay more overall. If you can comfortably afford a shorter term, you will usually pay less in total. If cash flow is tight, a slightly longer term may be the safer choice, as long as you know what it costs.
Three numbers to ask for before you sign
- The annual interest rate and whether it is fixed or variable.
- All fees, including initiation, monthly service and insurance.
- The total amount you will repay over the full term.
Under the National Credit Act, registered credit providers must give you a pre-agreement quote that sets out these costs. Read it before you accept.
Can you afford it?
Add the monthly instalment to your existing debt payments and compare the total with your take-home pay. If the new instalment forces you to skip groceries, transport or other debt payments, the loan is probably too big or too short. A reputable lender will run an affordability assessment, but you know your own budget best.
Key takeaways
- You always repay more than you borrow. Know exactly how much more.
- Compare lenders on the total cost of credit, not only the headline rate.
- Check that the instalment fits your budget with room to spare.
This article is for general information and is not financial advice. Interest rates and fees vary by lender and personal circumstances. Always read your credit agreement before signing.