[Question] TEMPORARY LOAN

[Ramboogie]

A friend has a registered Credit Company. He paid off a debt for me in excess of R300 000 which I could not afford to do at that point in time. At the time he said he would charge 5% interest per month and if not repaid after 6 months an additional 2%. I expressed my concern at the high interest rate but there was no real response. However the debt in the mean time had to be, and was, paid.

After some months I received an Acknowledgement of Debt Agreement and a Cession Agreement over the whole of my immovable property - a farm -on sale - it was on the market at the time and worth substantially more than the loan and still is. The Cession Agreement was to become operative if the property was not sold by some 9 months after the debt was paid off.

I did not like the conditions of the contract so I never signed. However it has always been my intention to pay back the loan at a fair rate. It is some 2 years later and we need to settle. The loan has never been formalised and I have never received a statement or serviced any part of it. The question is what is a fair rate in terms of the law? He is still holding out for 5% per month for the first 9 months plus 7% thereafter. Would that even be legal in terms of the NCR? Could this be termed a short term loan, at any point of the above transaction, in terms of the NCR? Many thanks.

[AndyD]

Wow, with the interest rates he suggested he'd be doubling his money after the first year alone if nothing was paid off the principal amount. My personal feeling is those kind of rates might be appropriate for a very short term loan of maybe a month or two but over a couple of years I'd consider then extortionate. I'm not sure what the NCR states but realistically I'd be in the ballpark of 10-15% compound per annum plus any admin fees etc. I'd suggest you seek legal advice because paying any portion of the debt he's invoicing you for may be seen as an admission of debt for the entire amount. Hopefully one of the more legal aware members can give you more facts and figures than I can.

[CLIVE-TRIANGLE]

The Act specifies a maximum of 5% per month for temporary credit; bridging finance and so on. As far as I know it does specify the period as being 3 months. I am not sure what happens if it starts off at 3 months but turns into a long-term loan.... but I would assume that it is no longer temporary.

[Ramboogie]

Thanks for the responses. From what I can gather the rate of 5% only applies to short term loans of less than 6 months with a maximum loan of R8000. Otherwise the maximum rate is as follows:

Secured Loan2.2 times repo rate) plus 10%

Unsecured Loan2.2 times repo rate) plus 20%.

The above is in terms of the NCA. I am not sure what the situation would be if two parties willingly contract for a higher amount in terms of our common law.