How a long-term loan works
A long-term loan is paid out once and repaid in equal monthly instalments, usually by debit order, until the balance reaches zero. Each instalment covers the interest on what you still owe and a part of the amount borrowed, so early instalments carry more interest and later ones more of the amount borrowed. The monthly service fee is added to every instalment.
Spreading the repayment is what makes larger amounts manageable on an ordinary salary. Where a payday loan has to be repaid from one month's income, a loan over a year or more asks for a smaller share of many months' income. That is also why lenders look closely at whether your income will stay steady for the whole term.
Which legal caps apply
The National Credit Regulations draw the line at R8 000 and six months. A loan of up to R8 000 that must be repaid within six months is short-term credit, with interest capped at 5% a month on the first such loan in a calendar year and 3% on later ones. A larger loan, or one repaid over more than six months, is usually an unsecured credit transaction, capped at the repo rate plus 21% — 28.25% a year while the repo rate is 7.25%.
Fees are capped the same way for both: an initiation fee of at most R165 plus 10% of the amount above R1 000, never more than R1 050, and a service fee of at most R60 a month, plus VAT. On a long term the service fee adds up, because it is charged for every month the loan runs.
How the term changes the cost
The table above shows the legal maximum for R10 000. Over 6 months the instalment may be up to R1 866.66; over 24 months it falls to R610.16, and over 60 months to R372.87. The total moves the other way: at most R13 630.90 over a year, but up to R24 119.59 over five years, more than twice what you borrowed.
Real offers are usually cheaper than these maximums, but the shape is always the same. Every extra month lowers the instalment a little and raises the total. Past a certain point the saving each month is small and the extra cost large, which is why the shortest term you can comfortably afford is usually the right one.
Six-month loans
Six months is the term people search for most, and it sits exactly on the legal line. R5 000 over six months is short-term credit: worked out as one payment at the end, the costliest way, interest, fees and VAT may reach R2 543.20. R10 000 over six months is an unsecured loan with a yearly cap instead, and its maximum instalment is R1 866.66. Our guide to six-month loans works through both.
Who offers which term
Terms differ widely between providers. Short-term lenders usually lend for weeks or a few months; others spread repayment over a year; banks lend over several years. Loan-matching services, which we list first on this page, pass your application to lenders that offer longer terms. The table of providers shows the amount range and the term each one publishes, and your answers to four questions show which of them may consider you.
Choosing the term
Start from the instalment you can carry in your tightest month, after every other debt and expense, and pick the shortest term that fits it. Keep the term shorter than the life of whatever you are paying for: nobody wants to be repaying a phone or a holiday after it is gone. If only a very long term makes the instalment affordable, that is a sign to borrow less.
Remember that you may settle early at any time. A slightly longer term with room in the budget, paid off early when money allows, costs only the interest up to the day you settle.