Don’t borrow blind: What every South African needs to know about short term credit

The loan industry is booming. The National Credit Regulator confirmed that the short term loan industry had a value of R3.26 billion in gross outstanding book* last year, a 5% growth from its previous quarter.

*Data refers to the total amount of money borrowers actively owed to lenders (not including bad debts, defaults or write-offs) for the quarter ending September 2024 as per the ‘Annual Performance Plan’, part B: strategic focus, page 17.

The NCR statistics suggest consumer need for this product type continues to grow year on year, so before applying for any kind of rapid access credit, it’s essential you fully understand the regulations, risks (and alternatives) that could save you money and keep you safe.

This article will serve as a guide to help you understand this industry better. We will answer important questions like: how much short term loans typically cost, what lower cost alternatives are available and how to avoid getting scammed by unregulated lenders.

What Are Short Term Loans?

Let’s start with the obvious but important. Short term loans are small, short-term credit products typically ranging from R1,000 to R8,000 with repayment periods between one week and six months. New customers can typically borrow up to R5,000 for three months maximum.

The National Credit Act regulates these loans under strict affordability assessment requirements introduced in 2015. Lenders must show you the ‘Credit Cost Multiple’ and ‘Total Cost of Credit’ before you sign any agreement.

How Much Do They Actually Cost?

The costs can vary significantly between different providers, so it pays (or rather, saves) to shop around to compare different costs of credit). Here is a typical representative short term loan example shared with Wonga South Africa’s permission (relevant to October 2025) showing the full break down:

Check These 5 Points Before Applying

Short term loans suit specific emergency situations only. You should be able to confirm all five of the below criteria before you start to consider this type of credit:

1. You need money for a genuine emergency or essential expense.
2. You have explored lower-cost alternatives.
3. You have guaranteed income before the repayment date.
4. You can repay the full amount without incurring future hardship.
5. You understand the total cost of credit calculation fully.

Avoid using short term loans for monthly expenses, debt consolidation, long-term borrowing, or impulse purchases.

Lower-Cost Alternatives to Consider First

Employer salary advance: Many companies offer interest-free advances against your next salary.

Credit union loans: Often provide small loans at significantly lower interest rates than short term lenders.

Bank overdraft facilities: May cost less for short-term cash needs, depending on your bank's fees.

Negotiate with creditors: Service providers like utilities often accept delayed or partial payments.

Stokvels: Traditional savings groups that provide emergency funds to members.

Government assistance: You may qualify for help with utilities or other essential expenses.

A short term loan fundamentally differs from employer salary advances, bank overdrafts, Buy Now Pay Later products, and personal loans. Each has its own specific rules, costs, and risks. For example, personal loans from banks typically offer lower interest rates for longer terms. Bank overdrafts may cost less for very short-term needs. BNPL products usually apply to specific purchases rather than cash advances.

Understanding the Risks

Debt cycles: The biggest danger is becoming dependent on loans to cover ongoing expenses rather than treating them as one-time emergency funds as intended.

Additional charges: Missing payments trigger collection costs and additional interest. Total fees cannot legally exceed your unpaid principal amount.

Credit score damage: Late or missed payments appear on your credit report for five years under Regulation 17 of the National Credit Regulations.

Normalizing high-cost credit: Regular use can make expensive borrowing feel routine instead of emergency-only.

Unregulated lenders: South Africa has a large volume of dangerous loan-shark lenders that don’t operate within the legal confines designed to keep customers safe. More on this below.

How to Spot Legitimate Lenders

Only borrow from registered credit providers. Check these requirements to help reduce your risk:

NCR registration: Verify the lender's NCRCP number on the National Credit Regulator's public register at ncr.org.za.

Written quotation: Legitimate lenders provide itemised cost breakdowns showing the Credit Cost Multiple before you accept.

Affordability assessment: Legal lenders must check your ID, income, expenses, and bank statements. Anyone promising "no credit checks" is not compliant.

No upfront fees: Never pay "release" or "processing" fees before receiving your loan. Avoid lenders requesting your bank card PIN or phone access.

Secure website: Look for https:// addresses with valid SSL certificates.

Please note these points are not a definite list for legitimacy but rather basic guidelines you should use as a preliminary verification. If you have any doubts about your potential lender (even if they pass the checks), do not borrow from them.

What Happens If You Miss Payments

Lenders typically follow a process similar to this if you miss your agreed payment window:

1. Contact within 24 hours to discuss repayment options.
2. Possible repayment plan if you contact them before the due date.
3. Additional late fees on outstanding amounts
4. Referral to third-party collection agencies
5. Negative impact on your credit score

Contact your lender immediately at the first sign of payment difficulty.

Eligibility For Credit

The loan approval process is designed to ensure that you can safely repay any credit you borrow without incurring further financial difficulties. Legitimate lenders use a robust, machine-driven algorithm that factors in many elements (such as your income, expenses and credit score) to determine if you are eligible for a loan.

Beyond this risk analysis, the standard eligibility requirements in South Africa include:

• Valid South African ID number
• Smartphone number
• Recent proof of income
• Bank account with major South African banks (Standard Bank, FNB, ABSA, Nedbank)

Finding Help With Financial Difficulties

If you're regularly relying on short term credit, we strong urge you to consider financial counselling. The National Credit Regulator provides debt advice resources, and many non-profit organizations offer free financial guidance.

Credit unions, community organizations, and some employers provide financial wellness programs that can help you build emergency savings and avoid high-cost credit.

Remember that short term loans have their place in the market; as a last resort for genuine emergencies, not a regular financial tool. The high costs make them unsuitable for ongoing cash flow management or debt consolidation.