What does credit really cost?


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By Ester Ochse, Product Manager, FNB Money Management

April 07, 2022: If used correctly, credit can add positive value to your overall financial well-being. But you need to make sure you understand what the total amount you’ll be repaying is and whether that amount is reasonable for the need you want to use the credit for; whether it is to renovate your house, buy materials and equipment for your secondary activity; or pay for your child’s education.

We have all seen the advertisements for taking out a loan/buying something on credit as it only costs R250, 500, 1000 per month.

What does this mean and how much do you pay in total?

Let’s take an example, let’s say you want to borrow an amount of R100,000 for a period of 5 years. The quote you receive from the financial institution indicates that you get an interest rate of 15% and the monthly payment is R2,508.46.

Here’s how the credit grantor will calculate your payment amount:

Principal (or principal) amount, i.e. the actual amount you are borrowing. In this case, the amount of R100,000

Interest rate, i.e. the amount the financial institution will charge you for borrowing money from them. The amount charged will depend on your credit score. You can easily check your credit status on the FNB app, under nav » Money – credit status or at any financial office. In this example, the interest rate is 15%.

Monthly Service Fee is the fee that the financial institution will charge monthly to administer the loan. These normally range from R50 to R115 per month. In this case, let’s assume it’s R69 per month.

Initiation Fee: This is the amount that the financial institution will charge for the loan documents and the administrator to start the agreement. These are also around R1,000 per loan. Suppose this is R1,207.50.

Consumer Protection Plan (CPP): This is insurance that will repay and cover the loan balance in the event of death, disability or temporary loss of income. Suppose in this case it is R324 per month.

All of these amounts add up to the total cost you will pay for the loan over the term. Let’s look at the total amount you will pay for this loan:

R100,000 + R50,507.60 = R150,507.60

Principal amount + Interest/Fees = Total amount to be paid over the term of the loan

Remember to include any loan repayments in your monthly budget, you can track your budget on FNB Smart Budget under nav» Money on the FNB app.


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