How the monthly repayment is calculated
Lenders quote an annual rate but charge interest monthly, so the calculator uses one twelfth of the rate each month. The instalment is the level payment that clears the loan by the final month:
PMT = P × r / (1 − (1 + r)−n)
With a balloon of B, only the part of the loan that is not deferred is spread over the term, and the instalment becomes (P − B / (1 + r)n) × r / (1 − (1 + r)−n). Interest is still charged on the full balance every month, including the part that makes up the balloon. The service fee is a flat amount added to each instalment, and a financed initiation fee simply increases P.
Worked example: R350,000 of vehicle finance
Finance R350,000 over 72 months at 12.5%, with the maximum R1,050 initiation fee added to the loan and an R60 monthly service fee. Without a balloon, the monthly payment is R7,014.71 and the total cost of credit is R155,059. Add a 30% balloon and the payment drops to R6,028.29, but you still owe R105,000 after the last instalment and the cost of credit rises to R189,037, because the deferred amount carries interest for all 72 months.
What a balloon commits you to
When the balloon falls due you have three choices: pay it in cash, refinance it with a new credit agreement (with new fees and a new rate), or sell or trade in the vehicle and use the proceeds. The risk is that the car is worth less than the balloon by then, leaving a shortfall to cover from your own pocket. Before agreeing to a large balloon, look up what a similar car of that age and mileage sells for today and compare it with the amount you will owe.
Fees you will see on a South African loan
An initiation fee is charged once, when a new credit agreement is opened. The regulations say it may only be charged on a new agreement, not per transaction. A monthly service fee covers the lender's running costs for your account. Many lenders also require credit life insurance, which the National Credit Act regulates separately: the cover may not exceed what you owe. Before you sign, the lender must give you a pre-agreement statement and a quotation. The quotation sets out the principal debt and every fee, charge and interest amount, and the lender is bound by it for five business days.
National Credit Act limits on interest and fees
The maximum interest rates and initiation fees below come from the Review of Limitations on Fees and Interest Rates Regulations, which apply to credit agreements entered into on or after 6 May 2016. Most interest caps are the Reserve Bank's repo rate plus a fixed margin, so the ceiling moves when the repo rate does. The maximum monthly service fee is R60.
| Type of credit | Maximum interest | Maximum initiation fee |
|---|---|---|
| Mortgage agreements | Repo rate + 12% a year | R1,100 plus 10% of the amount above R10,000, capped at R5,250 |
| Credit facilities (such as credit and store cards) | Repo rate + 14% a year | R165 plus 10% of the amount above R1,000, capped at R1,050 |
| Unsecured credit transactions | Repo rate + 21% a year | R165 plus 10% of the amount above R1,000, capped at R1,050 |
| Developmental credit: small business | Repo rate + 27% a year | R275 plus 10% of the amount above R1,000, capped at R2,600 |
| Developmental credit: low income housing (unsecured) | Repo rate + 27% a year | R550 plus 10% of the amount above R1,000, capped at R2,600 |
| Short-term credit transactions | 5% a month on the first loan, 3% a month on later loans in the same calendar year | R165 plus 10% of the amount above R1,000, capped at R1,050 |
| Other credit agreements | Repo rate + 17% a year | R165 plus 10% of the amount above R1,000, capped at R1,050 |
| Incidental credit agreements | 2% a month | None allowed |
A personal loan from a bank or microlender is usually an unsecured credit transaction. If a quote breaks these limits, ask the lender to explain it, and you can complain to the National Credit Regulator.
Business loans
The Act protects consumers, and section 4 excludes credit agreements with juristic persons whose asset value or annual turnover is at or above a threshold set by the Minister. A loan to a larger company is then governed by its contract, and the caps above do not apply. Model the instalment here, then test it against your expected receipts in a cash flow forecast. If slow-paying customers are the reason you need the loan, the late payment interest calculator shows what you can charge them, and the bond repayment calculator handles property finance over 20 or 30 years.
This calculator is a planning aid, not credit or financial advice.
Frequently asked questions
How do I work out the monthly repayment on a loan?
Divide the annual interest rate by 12, then use the amortising loan formula: payment = P × r / (1 − (1 + r)^−n), where P is the amount borrowed, r the monthly rate and n the number of months. Add the monthly service fee to get the amount that leaves your account. The calculator does this for you and also handles a balloon.
What is a balloon payment on car finance?
A lump sum, set as a percentage of the amount financed, that you still owe after the last monthly instalment. It lowers the instalment because less capital is repaid each month. On R350,000 over 72 months at 12.5%, a 30% balloon cuts the instalment by R986 but leaves R105,000 to pay at the end and adds R33,977 of interest.
What is the maximum initiation fee on a personal loan?
For an unsecured credit transaction the regulations allow R165 plus 10% of the amount above R1,000, capped at R1,050. On a R5,000 loan that is R565, and any loan of R9,850 or more reaches the R1,050 cap.
What is the maximum monthly service fee a lender can charge?
R60 a month under regulation 44 of the National Credit Act regulations, as amended for agreements from 6 May 2016. It covers the lender's cost of administering the account, and must be charged pro rata in the month the agreement is signed.
What is the highest interest rate allowed on a personal loan?
For an unsecured credit transaction the cap is the repo rate plus 21 percentage points a year. Because it is tied to the repo rate, the cap moves whenever the Reserve Bank changes the repo rate. Check the current repo rate on the SARB website and add 21 to get the ceiling.
Should the initiation fee be added to the loan or paid up front?
Paying it up front is cheaper because a financed fee attracts interest for the whole term. On R50,000 at 20% over 36 months, adding the R1,050 fee to the loan costs R354.78 more in interest. If you have the cash, ask the lender if you can settle it separately.
What does the total cost of credit include here?
Interest, the initiation fee and every monthly service fee over the term. It leaves out credit life and other insurance premiums, so check the quotation for those. Compare loans on this figure rather than the instalment alone.