According to the Transunion Consumer Credit Index, South Africans are borrowing more money this year compared to last. And thanks to rising petrol prices and the potential of more expensive imports, many families borrow even more.
As the same families reach their credit limits on personal and store credit cards, funds may dry up.
Payday loans are available to anyone with a job regardless of their debt, and it’s possible that even more South African may use them this year to cover things their household cash doesn’t reach. They’re fast, easy, and don’t require a credit check.
Like all forms of credit, instant loans come with fees. It’s important to know what you’re paying for before choosing these loans.
Do you know how much your payday loan fees will cost? Keep reading to find out.
Payday Loan Fees: The Basics
Whether you take out a credit card or a mortgage, there will always be fees to pay.
Why? Because you’re using a service, and it costs money to provide money.
The average payday loan comes with four fees commonly assessed by both traditional and instant lenders:
- Initiation fees
- Service fees
- VAT (15% in SA)
The initiation fee covers the cost of processing the application and securing the funds for your loan. In most cases, the initiation fee is the largest of the charges and its size scales to the amount you borrow.
The service fee covers things like communication and the general provision of the financial tool.
Lenders also apply interest fees as an annual percentage rate (APR). The interest fee is calculated per month and applied to your loan balance for as long as a balance remains.
VAT covers the tax all businesses must add to a product.
The four fees described here are standard, and reputable payday loan companies should be transparent about what each charge consists of. On top of that, it’s important to understand how much the fee is before signing up for a loan. Fees add considerably to the amount you borrow.
How Fees Increase the Cost of Your Loan
Borrowing money always means paying back more than the principal. You shouldn’t take out a loan unless you’re prepared to make payments over what you borrowed.
Here’s an example.
You need to borrow R2000 for a few weeks. If given the cash loan, you must pay back the R2000 borrowed. However, you must also pay:
- R265.00 Initiation Fee
- R40.00 Service Fee
- R42.70 VAT
- R45.30 Interest
Altogether, your total is R2393.00 – or R393.00 more than you borrowed.
Keep in mind that these common fees aren’t the only costs associated with payday loans. Late repayment comes with additional charges that send your payments even higher. People who use payday loans successfully don’t borrow more than they can repay during the term of their loan.
Borrow Smart to Avoid High Fees
Every loan comes with fees whether it’s provided by an international bank or short-term lender. Payday loan fees feature many of the same charges anyone would use: initiation, service, VAT and interest fees.
The amount these fees add to your balance depends on how much you’re borrowing, whether you pay your loan back on time, and who you borrow from.
Are you looking for a payday loan in South Africa? LittleLoan might lend you R500 – R8000 to cover life’s little expenses. Learn more about our fees and get the money you need with our simple application.