The National Credit Act regulates all credit agreements where the receiving party is a natural person or a juristic person (i.e. a company or a trust) that has an annual turnover or an asset value of less than R1,000,000.00.
In such circumstances the National Credit Act lays down, inter alia, the maximum interest rate which a lender may charge a borrower.
Maximum Interest Rates in South Africa
- Mortgage agreements – 19.5% per annum;
- Credit facilities – 21.5% per annum;
- Unsecured credit transactions – 28.5% per annum;
- Developmental credit agreements – 34.5% per annum;
- Short-term transactions – (5% per month on the first loan and 3% per month on subsequent loans within a calendar year);
- Other credit agreements – 24.5% per annum; and
- Incidental credit agreements – 2% per month.
These rates are the maximum rates, and it does not, therefore, follow that they are commercially viable. Many of them, if charged at the full rate, would no doubt cause a borrower to look for funding elsewhere.
Interest Rate Exceptions
In respect of parties who fall outside of the regulations of the National Credit Act, there is no ceiling to the amount of interest which a lender may charge a borrower.
That is the general principle. The Courts take the view that parties possessed of a certain level of commercial sophistication are capable of negotiating to their own best advantage, and the fact that an interest rate may be rather on the high side is not something that the Courts should likely interfere with.
In short, unless extraordinary circumstances apply, it is likely that the Courts would not support an application by a borrower to overturn an agreed interest rate, notwithstanding that it may appear to be exorbitant.
It may be remembered that there was a Usury Act which dealt with rates of interest: that Act has been repealed and has not been replaced. Consequently, parties falling outside of the National Credit Act should consider agreed interest rates with a lender to be binding upon them.