The prescribed rate of interest has changed to 10% a year with effect from May 1. The previous rate was 10.25%.
Patrick Bracher, a director of law firm Norton Rose Fulbright South Africa, says that according to the Prescribed Rate of Interest Act, interest on debts where no rate is prescribed is calculated at the repo rate plus 3.5%. The prescribed rate of interest applies to all debts unless a different rate is set by law, by trade custom or by agreement between the parties. The parties can therefore avoid the application of the prescribed rate by agreeing to a different interest rate, subject to other applicable laws, such as the National Credit Act, which may limit the amount of interest that can be charged.
Bracher says that when the Reserve Bank changes the repo rate, a new prescribed rate of interest becomes effective from the first day of the second month following the month of the new repo rate announcement.
The applicable rate of interest for any debt is the rate that is in effect on the due date for payment or the date of demand for payment where there is no fixed due date. The rate will continue to apply even if the prescribed rate of interest changes at a later date.