Loan paperwork is full of words that sound like everyday English but mean something exact. A short glossary can save you from agreeing to something you did not understand.
Use these loan terms alongside your quote, and ask the lender about any word that is missing.
What do the core loan terms mean?
| Term | Meaning |
|---|---|
| Principal | The amount you borrow |
| Interest | The cost of borrowing, usually a percentage |
| Initiation fee | A one-off fee for setting up the loan, capped for regulated credit |
| Service fee | A fee charged regularly, often monthly, for administering the account |
| Instalment | The regular payment you make |
| Term | The length of the loan |
| Total repayment | Everything you pay back, in rand |
| Credit life insurance | Cover that settles the loan in certain events. See credit life insurance |
A quick check: total repayment minus the amount you receive is the real cost of the loan.
What do the problem loan terms mean?
| Term | Meaning |
|---|---|
| Arrears | Amounts overdue |
| Default | Failing to meet the agreement, usually after missed payments |
| Default fees | Charges for late payment, which should be reasonable |
| Section 129 notice | A written warning before legal action. See section 129 notices |
| Judgment | A court order to pay. See judgment debt |
| Repossession | The lender takes back secured goods. See repossession |
| In duplum | The rule that interest and fees on a defaulted loan cannot exceed the unpaid original amount |
What do the end-of-loan terms mean?
| Term | Meaning |
|---|---|
| Settlement quote | The amount to pay to close the loan on a given date. See settling a loan early |
| Clearance or paid-up letter | Proof that the loan is paid |
| Balloon payment | A large final payment on some loans |
How do rates differ?
- Fixed rate: does not change during the loan.
- Variable rate: can change, often linked to the prime rate.
- Flat rate: charged on the original amount throughout.
- Reducing balance: charged on what you still owe.
See interest rates for how these affect cost in rand.
What are the legal loan terms to know?
- Pre-agreement statement and quotation: the document that sets out the main terms before you sign. See the guide to the pre-agreement quote.
- Affordability assessment: the lender’s check that you can repay.
- Reckless lending: granting credit without a proper assessment. See reckless lending.
- Debt review: a process to restructure debts. See debt review.
When you see a term you do not understand, ask the lender to explain it in writing. A lender that avoids the question is a warning sign.
How do you use this glossary?
Read the quote with this page open. Find the total repayment, the fees and the dates. If a term is missing, such as the total cost, ask.
Our guide to how to read a credit agreement goes through a whole agreement.
Where can you get more help?
The National Credit Regulator publishes consumer information, and the Credit Ombud can help with disputes. Read responsible lending for free sources of help.
What do the loan terms look like on a real quote?
Here is a hypothetical quote for a first, one-month R2,000 loan at the legal maximums. Next to each line is what to check.
| Line | Example | What to check |
|---|---|---|
| Principal | R2,000 | It matches what you asked for |
| Interest | R100 | The rate and how it is charged |
| Initiation fee | R265 | Within the legal cap |
| Service fee | R60 | Monthly, and for how many months |
| VAT on the fees | R48.75 | Charged only on the fees |
| Total cost | R473.75 | Add the lines and compare |
| Total repayment | R2,473.75 | The number to compare between lenders |
| Due date | The 25th | After your payday |
| Late payment charge | As stated | Reasonable, and shown in the agreement |
If your quote does not show a line, ask the lender for it. A quote that hides the total, or shows a different total from the sum of its lines, should not be accepted.
Which other loan terms should you know?
A few terms appear in agreements for larger loans and are easy to miss.
| Term | Meaning |
|---|---|
| Security | An asset, such as a car, that the lender can claim if you default |
| Surety or guarantor | Someone who promises to pay if you do not |
| Credit facility | A limit you can use repeatedly, such as a card or overdraft |
| Statement | A record of what you owe and what you have paid |
| Rescheduling | Changing the repayment dates or amounts |
| Arrears fee | A charge for missing a payment |
Before you sign, ask yourself: is there a surety, who is it, and have they understood the risk? A surety can be forced to pay if you do not, so never agree to be one without reading the agreement.
Which loan terms do people confuse?
Some pairs sound alike but mean different things. Keep them apart:
- Interest rate vs cost of credit. The rate is one part. The cost includes fees and insurance.
- Arrears vs default. Arrears are overdue amounts. Default is failing the agreement, usually after repeated arrears.
- Settlement vs a partial payment. Settlement closes the loan. A partial payment only reduces the balance.
- Co-borrower vs guarantor. A co-borrower shares the loan. A guarantor promises to pay if the borrower does not.
- Instalment vs total repayment. The instalment is one payment. The total repayment is all of them added together.
How do you ask a lender to explain loan terms?
Use plain, specific questions, and ask for the answers in writing:
“Please explain the line called [term] in my quote. What does it cost me in rand, when is it charged and can it change?”
A good lender will answer without fuss. If you feel rushed or the answer is vague, take it as a sign to wait. Our guides to the pre-agreement quote and credit agreements show how every term fits together.
Which three loan terms should you check first?
If you only have two minutes with a quote, check these three before anything else:
- Total repayment. It tells you what you will pay back in rand.
- Due dates. Make sure each one falls after your payday.
- The cost of missing a payment. Late charges and the effect on your record should be stated plainly.
If those loan terms are clear and fit your budget, read the rest at your own pace. If any of them is missing, ask for it before you go further.
A lender that explains loan terms in plain words is usually one that expects you to read them.
Frequently asked questions
What does “arrears” mean?
Money you owe that is past its due date.
What is a settlement figure?
The amount needed to close the loan on a specific date. Ask for it in writing.
What does “default” mean for my record?
A default can be listed at a credit bureau. See removing a default.
What is a pre-agreement quote?
A written statement of the main terms and costs, which the lender must give you before you sign.
What is the most important of all the loan terms?
The total repayment in rand. It shows what the loan really costs, and it is the number to compare across lenders.
Are loan terms the same for every lender?
The words are standard, but each lender’s fees, rates and rules differ within the legal limits. Always read your own quote.
One free 5-minute form is sent to NCR-registered lenders. Each lender decides for itself and shows you the full cost before you sign.
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