Important information for South Africans with loans and credit cards

South Africans with personal loans and credit cards have been urged to compare the interest they pay on these loans to the maximum allowable rate to ensure they are being charged fairly.

National Debt Counsellors’ Association chairman Benay Sager said this warning comes amidst an increasing number of South Africans relying on credit to make it through the month.

This could be seen in Discovery Bank and Visa’s most recent SpendTrend report, a comprehensive analysis of spending in South Africa, drawing on data from over 2.6 billion transactions.

Discovery Bank CEO Hylton Kallner explained that South Africans increasingly use credit and retirement savings to supplement their disposable income.

The number of credit cards in use across South Africa has increased 53% since 2020, and loan demand remains strong. 

Interestingly, while more cards are being issued and the average new credit limit has increased, overall spending per active card has remained steady. 

This suggests consumers are distributing their spending across multiple payment methods rather than significantly increasing their credit card usage.

Therefore, credit card numbers are growing faster than total spending, leading to lower average spending per card.

This also means that consumers are using multiple credit cards to tap extra sources of credit, and people are optimising rewards and benefits by strategically using different cards.

Sager said pressure on local consumers is expected to worsen as the South African Reserve Bank (SARB) expects inflation to tick up to an average of 3.6% in 2025 and continue rising to 4.5% in 2026.

“This, combined with global uncertainty, means the central bank is unlikely to make any further rate cuts,” he said.

“Add increased electricity costs, tax bracket creep and ever-increasing service delivery costs to the mix of diminishing spending power, and it is understandable why so many consumers will continue to depend on credit.”

South Africans urged to check their rates

Sager explained that, in this environment, consumers must understand how much interest they pay on credit-related products such as personal loans and credit cards. 

More importantly, he urged them to compare this to the maximum allowable interest rate to ensure they are being charged fairly.

In South Africa, the maximum allowable interest rate is regulated by the National Credit Act and depends on the type of credit agreement and the date it was signed.

For South Africans, the two most important types of credit agreements are personal loans and credit cards. The maximum interest rates allowable for each have varied significantly over the past decade.

Sager explained a significant change in November 2015, when the regulatory calculations for maximum interest rates were changed. 

This change lowered maximum allowable interest rates and has generally been positive for consumers. 

Since the maximum allowable interest rates on personal loans and credit cards depend on SARB’s repo rate, they benefited from rate cuts during the Covid-19 pandemic.

Conversely, since 2022,  the repo rate has steadily risen, resulting in corresponding maximum allowable interest rates for both personal loans and credit cards.

To illustrate, Sager used a personal loan taken out in 2024 as an example. In that year, the average personal loan was just over R30,000. 

Assuming the loan term – the time a consumer has to repay the loan – is one year at a rate of 28.5%, they would pay R8,550 in interest. In South Africa, loan terms can range from three to 84 months.

Similarly, average credit card balances are R24,000 a month, attracting approximately R430 interest per month.

This depends on how the credit card provider calculates the interest. Assuming the consumer pays off the full balance, this amounts to R5,160 in interest per annum.

“These are illustrative calculations, but indicate that the amount of interest you pay for these forms of credit is significant,” he said.

“It is why it’s important to compare interest rates before signing a credit agreement, and be aware of the maximum allowable interest rates.”

“Although there’s a global trend towards this, many people still accept the first approved loan without considering they may be able to get a better deal.”

He said consumers unsure whether they’re paying too much interest or the maximum rate should check with an NDCA member.  

“Renegotiating interest rates on debt is one of the most powerful tools in a debt counsellor’s arsenal,” Sager explained. 

“Under debt counselling, rates for unsecured debt can be reduced to near 0% if needed. This allows consumers to pay back expensive debt faster.”

The graph below indicates the maximum interest rates allowable for personal loans and credit cards and how these have varied since January 2014.