What a payday loan is
A payday loan, or short-term loan, is a small amount you repay in full within weeks, usually on your next payday. Under the National Credit Act a loan of up to R8 000 that must be repaid within six months is a short-term credit transaction, and it has its own set of limits, separate from personal loans.
These loans exist because the gap between an unexpected expense and the next salary is real. Used once, for a cost you could not have planned for and with the repayment already covered by your next salary, a payday loan can be the least bad option. Used to cover the gap every month, it becomes very expensive very quickly.
What it costs, in rand
Interest on a short-term loan may be at most 5% a month on your first such loan in a calendar year, and 3% a month on later ones in the same year. The initiation fee may be at most R165 plus 10% of the amount above R1 000, never more than R1 050, and the service fee at most R60 a month. VAT may be added to the fees.
On a R1 000 loan for 30 days that means, at most, about R49 in interest, R165 in initiation fee and R60 in service fee — roughly R275 before VAT on the fees, or a little over R300 with it. That is why the annual percentage rate of a payday loan looks enormous: R300 on R1 000 for one month, repeated twelve times, would be more than the amount borrowed. The rand figure for your amount and your term is the number to look at, and our loan cost calculator works it out.
Notice how much of the cost is fees rather than interest. On small amounts the fixed fees dominate, so borrowing R500 costs almost as much in fees as borrowing R1 000. If you need a small amount, it is worth asking whether a slightly larger single loan would replace two small ones.
Before you apply
Work out exactly when your salary lands and when the repayment is due. If the debit order runs before your income clears, it bounces, and the fees for a failed payment are added to a loan that was already expensive. Choose a repayment date a day or two after payday if the provider allows it.
Count the repayment against next month's budget, not this month's. The loan solves this month's problem by taking the same amount, plus the cost, out of next month. If next month already looks tight, the loan is likely to lead to a second one.
Rolling over and borrowing again
Some borrowers repay one short-term loan and take out another on the same day, because the repayment left them short again. Each new loan carries a new initiation fee, and the 3% monthly cap on later loans in the same year does not make the habit cheap. If you find yourself borrowing every month to cover the previous month, the problem is the budget rather than the timing, and a free conversation with a registered debt counsellor is likely to help more than another loan.
How providers decide
Short-term lenders still have to assess affordability and check your credit record; a registered provider cannot skip that. Most decide quickly because the amounts are small, and many ask for a South African ID, your latest bank statements or payslip, and your bank details for the debit order. A provider that promises approval before seeing any of this is not describing a real assessment.
Never pay anything up front to be granted a loan. A registered provider deducts its fees from the loan or adds them to the repayment; asking you to pay first is the hallmark of a scam.
If you cannot repay on time
Call the provider before the due date. Many will agree a new date or split the repayment if you ask early, and that costs far less than a failed debit order followed by collection steps. A missed payment is reported to the credit bureaus and stays on your record, which makes every future loan more expensive.
You may also settle early at any time. Repaying a few days before the due date reduces the interest, because interest on a short-term loan is charged for the time you actually hold the money.
Cheaper ways to cover a short gap
Before a payday loan, it is worth checking a few alternatives. Many employers offer a salary advance at no cost. Your bank may offer a small overdraft or a temporary limit increase at a lower rate than a short-term loan. If the expense is a bill, the company you owe may agree to a payment arrangement over two or three months at no extra charge, especially if you ask before the due date.
If none of these is available and the repayment is clearly covered by your next salary, a short-term loan from a registered provider is a legitimate option. The rule of thumb is simple: borrow only what you need, for the shortest time, from a provider whose NCR number you have checked.
Comparing through RandScout
We match your answers against the rules each registered provider publishes and show only those that may be open to you, with their registration number with the National Credit Regulator. Comparing here does not leave an enquiry on your credit record. The provider runs its own checks when you apply on its site, and it makes the decision.