Is your personal loan interest rate within the legal limit? National Debt Counsellors' Association explains

CapeTalk's Lester Kiewit speaks to Benay Sager, Chairperson of the National Debt Counsellors’ Association.

Listen below:

Is your personal loan interest rate within the legal limit?

Sager goes into detail about the various types of loans:

For example, for a bond/mortgage, the maximum allowed interest rate is whatever the repo rate is plus 12%, he says.

So, if the repo rate as set by the reserve bank is 7.5% like it is today, the maximum interest you should be paying on your mortgage is 19.5%.

"We should be clear that it very much depends on when you originally opened your credit agreement. So, when you took out a mortgage five years ago, whatever the repo rate was at that time plus the 12% would be what you should be paying at that time but today it's different."

- Benay Sager, Chairperson - National Debt Counsellors’ Association

However, for personal loans and credit facilities, it varies, says Sager.

For example, for personal loans, it's the repo rate plus 21% so that makes it 28.5%.

So, if you look at your statement and you're paying more than this, a lightbulb should go on, and you should probably call your lender and find out why you're paying more. 

For example, there was a period way before 2015 where the interest rates were much higher so if you've got a credit card from pre-2015, your maximum interest rate would be much higher than today, says Sager.

You might want to call your credit provider and find out if there's a way to get you toward a lower interest rate, explains Sager.

"It's important for consumers to educate themselves. The maximum that is allowed depends on the time when the maximum interest rate was repo'd at that time with the type of credit agreement you've got."

- Benay Sager, Chairperson - National Debt Counsellors’ Association

When it comes to short-term loans, Sager says it can be a little more complicated. These are often less than R8 000 type of agreements generally given over one or two or three months.

"For short-term loans, the creditors are allowed to charge 5% per month on the very first loan for up to three months, generally. The second time, it's maxed at 3% per month. So, again, it's important for you to know, if you go back and take out a small loan for the second or third time, what you should be paying should be lower from a maximum interest rate perspective."

- Benay Sager, Chairperson - National Debt Counsellors’ Association

Whether you're in the market for a small or large loan or a bond, it's important to do research and see which credit institutions can provide you with the best options.

Should you want to challenge any terms of debt with creditors, contact the Credit Ombudsman to assist, Sager suggests.

Find more information on this topic on the National Debt Counsellors’ Association's website.

Scroll up to the audio player to listen to the full conversation.