Check your credit agreement interest rates
Not all credit is equal. The National Credit Act (NCA) defines various types of credit agreements while regulations under the act prescribe the maximum interest that you can be charged for each category of credit.
A home loan is a form of secured credit because the loan is secured by a property.
If you stop paying your instalments, the bank can repossess the property and sell it to recover the outstanding balance.
For this reason, the maximum interest rate on a home loan is much lower than the maximum interest that you can be charged on a personal loan, which is an unsecured loan.
A short-term loan, otherwise known as a micro loan, is also a type of unsecured loan. The NCA defines it as a loan of up to R8 000 and repayable in six months.
Knowing the maximum interest payable on both types of unsecured loans can mean the difference between paying 31% interest a year and 48% a year. That's because the maximum interest you can be charged on an unsecured loan is 31% a year.
On a short-term loan it is 5% a month for the first loan (5% x six months = 30%) and 3% a month for subsequent short-term loans taken in the same calendar year (3% x six months = 18%).
This means that if you take out two short-term loans in one year, you will pay 48% in interest over the year.
A "credit facility" refers to store cards, credit cards and overdrafts.
The maximum you can be charged in interest on a credit facility is 24% a year.
With most credit agreements, you are charged interest according to your risk profile, or your credit rating. The credit provider will check your credit record to assess your likelihood of paying on time, based on your credit history.
If you don't have a credit history, or if you have a poor record of paying your bills on time, you will be charged higher interest than someone with a good credit record.
An incidental credit agreement attracts interest at a rate of 2% a month.
With this agreement, there is no credit facility extended to you, but if you fail to pay within 30 days, interest is payable.
Common examples include medical bills, legal bills or school fees.