How short-term loans work
Short-term credit under the National Credit Act means R8 000 or less repaid within six months. That definition does more work than it appears to — it is what determines the interest cap, the fee structure and the way interest is calculated.
The cost is worked out up front rather than accruing on a balance. The lender calculates interest for the whole term on the full amount you borrow, adds the once-off initiation fee, adds a service fee for each month, adds VAT to both fees, and divides the total across the months. That is why your instalments are typically equal and why the figures are knowable before you sign.
This differs fundamentally from how a personal loan or a home loan works, where interest is charged on a reducing balance and each instalment lowers the amount interest is calculated on. On short-term credit, month four costs the same interest as month one.
The practical consequence is that the term is the strongest lever you control. Every additional month adds interest on the full original amount plus another service fee and VAT. Choosing the shortest term whose instalment you can genuinely meet is nearly always the cheapest decision available.
At the end you should receive confirmation that the account is settled. Check your credit record a month later to confirm it reflects as settled rather than open — a paid loan still showing as active affects your next application.
Related
Sources and last checked
- National Credit Act 34 of 2005 and its regulations — Government, as at 10 August 2026.
Page last checked 10 August 2026. Statutory caps and lender terms change — confirm anything you intend to rely on with the provider or the National Credit Regulator. Found something wrong? Tell us and we will correct it.