Borrowing from a private lender in South Africa: what the law says

In South Africa, a private individual may lend rands to a relative, but once interest is charged the National Credit Act generally requires registration with the National Credit Regulator, otherwise the agreement risks being declared void.

The National Credit Act of 2005, the basis of South African credit

Act 34 of 2005, known as the National Credit Act or NCA, governs almost every credit agreement concluded in South Africa. It sets lenders' obligations, protects borrowers from over-indebtedness and gives oversight to the National Credit Regulator, based in Midrand.

Registration threshold cut to zero in 2016

Before 2016, only lenders above a certain volume of agreements had to register. Since the reform the threshold is zero: anyone lending with interest on commercial terms must in principle obtain registration as a credit provider with the NCR.

Lending without registration: the risk of a void agreement

South African courts, notably in De Bruyn v Karstens, have declared void loans made by an unregistered individual. The lender can then no longer enforce the agreement in court and must fall back on a less certain claim for restitution.

Family loans and transactions not at arm's length

The Act excludes certain transactions not at arm's length, for example between financially dependent family members. The exception is read strictly: an interest-free loan between brother and sister, documented in writing, is far less exposed than an interest-bearing loan between colleagues.

Interest rate caps and the in duplum rule

The National Credit Regulations cap interest by type of credit, starting from the South African Reserve Bank repo rate. The in duplum rule also prevents unpaid interest from exceeding the outstanding capital, a valuable protection against aggressive lenders.

Stokvels: rotating savings, not credit

Millions of South Africans contribute monthly to a stokvel, a rotating savings club similar to a shared money pool between individuals. The NASASA association represents some of them. A written constitution sets the order of payouts and the penalties for late contributions.

Mashonisas: neighbourhood moneylenders

A mashonisa lends small sums in the townships, often at very high monthly rates. Some illegally confiscate the borrower's SASSA card, bank card or identity document. Report such conduct to the NCR and to the police.

Tax on interest received by the lender

Interest received is taxable income to be declared to the South African Revenue Service on the ITR12 return. An annual interest exemption exists, higher after age 65. To compare with other countries, see our page on tax on private loans.

Exchange control for loans from abroad

A loan from a relative living in London or Harare goes through a bank acting as an authorised dealer. The Reserve Bank's Financial Surveillance department oversees cross-border flows, so keep a record of the stated purpose and the supporting documents given to the bank.

Fake lender scams on Facebook and WhatsApp

Adverts promise a loan with no credit check, then demand activation fees by transfer or vouchers. This pattern, set out in our report on the social media loan scam, targets people with adverse listings at the credit bureaus.

SAFPS, SABRIC and the Credit Ombud: where to complain

The Southern African Fraud Prevention Service lets you register protection after identity theft. SABRIC centralises bank fraud data. A dispute with a registered lender can be taken to the Credit Ombud or the National Consumer Tribunal.

Five metros, five borrower profiles

Johannesburg is home to migrants and informal entrepreneurs, Pretoria to civil servants and diplomats, Durban to dockworkers and traders, Cape Town to students and remote workers. See also our pointers for borrowing between individuals in Gqeberha, the Eastern Cape's automotive hub.

Steps for a compliant private loan in rands

1. Decide whether the loan will be interest-free or interest-bearing, since lending on commercial terms generally requires NCR registration.
2. Draft an acknowledgement of debt or loan agreement stating the amount in rands, term, instalments, any rate and the consequences of late payment.
3. Have copies of identity documents certified by a commissioner of oaths, available at SAPS police stations among other places.
4. Pay the funds by EFT from a South African account in the lender's name, never in cash without a signed receipt.
5. Keep a table of repayments received and retain the matching bank statements for the whole term of the loan.
6. Declare interest received to SARS through eFiling, and see a lawyer about any arrears before prescription runs out.

Costs and caps to know in South Africa

Documents for lender and borrower to gather

• Certified copy of South African ID card or passport
• Recent proof of address, in the spirit of FICA
• Borrower's last three payslips or bank statements
• Loan agreement or acknowledgement of debt signed by both parties
• Bank confirmation letter showing the repayment account
• Proof of the initial EFT payment
• Dated and signed repayment schedule

Missteps and fraud signals in South Africa

• Charging regular interest to colleagues or neighbours without NCR registration, then finding in court that the agreement cannot be enforced.
• Paying insurance, legalisation or activation fees to a lender met on Facebook before receiving a single rand.
• Handing your SASSA card, bank card or PIN to a mashonisa as security for a small loan.
• Lending cash to a relative with no receipt or acknowledgement of debt, making proof almost impossible after several years.
• Sending a copy of your ID and statements to a stranger, opening the door to identity fraud with banks.

Your questions on private loans in South Africa