The National Credit Act gives borrowers some strong rights that are easy to overlook. Three of them can save you real money.
You can pay extra at any time, without penalty
Section 126 lets you prepay any amount of a credit agreement at any time, without notice or penalty. The lender must accept it and credit it on the day it's received: first to interest due, then to fees, then to the capital you owe. Paying extra reduces the capital, so less interest builds up afterwards.
On a R100,000 loan over five years at 13.5%, paying an extra R500 a month saves R9,473.04 of interest and clears the loan 14 months early.
You can settle at any time
Section 125 lets you settle a credit agreement at any time, with or without notice. The settlement amount is:
- the unpaid capital,
- plus the unpaid interest, fees and charges up to the settlement date,
- plus, for a large agreement only, an early termination charge of up to three months' interest, less any notice you give.
Every home loan is a large agreement, as is other credit above the large-agreement threshold. For smaller loans there's no early termination charge at all. On a variable-rate large agreement, giving the lender three months' notice before you settle removes the charge.
Interest can't run on forever: the in duplum rule
Section 103(5) protects you if you fall behind. While you're in default, the interest, fees and charges that build up can't, in total, exceed the unpaid capital at the time you defaulted. It stops a debt from snowballing endlessly.
Interest rates and fees are capped
The law also caps interest rates and fees by type of credit: see how loan rates are quoted and capped.
If you're struggling
Talk to your lender early. If you're over-indebted, the National Credit Regulator registers debt counsellors who can help restructure your repayments. Our loan repayment calculator shows what paying extra or settling early would save. We don't offer credit, arrange loans or recommend lenders.
A worked example of settling
On a R100,000 loan at 13.5% over 60 months, after 24 payments of R2,300.98 you'd still owe R67,805.21. Settling then, plus any interest since the last payment, ends the loan: you avoid the R15,030.48 of interest the remaining 36 months would have charged. Because it's not a large agreement, there's no early termination charge.
Sources
- National Credit Act 34 of 2005 (sections 9, 103, 125 and 126)
- Government Gazette 39379: review of limitations on fees and interest rates
This is general information, not tax, legal or financial advice.