The prescribed rate of interest has been changed. With effect from 8 January 2016, interest will be charged at 9.75% per annum, up from the previous rate of 9%.
Interest on debts will be calculated at the repo rate plus 3.5%. The repo rate is determined from time to time by the South African Reserve Bank and is currently (January 2016) 6.25%, following an increase in November 2015.
When the Reserve Bank makes changes to the repo rate, the new prescribed rate of interest will become effective from the first day of the second month following the month of the new repo rate announcement.
What happens where interest started running before the new rate came into effect? The answer depends on the agreed due date for payment or the date when payment was demanded. The applicable interest rate is the rate that was in effect on the due date or date of demand for payment. That rate will continue to apply even if the prescribed rate of interest changes at a later stage.
The prescribed rate of interest applies to all debts except where a different rate is set by law, by trade custom or by agreement between the parties. Parties can sidestep the application of the prescribed rate by agreeing to a different interest rate subject to other applicable laws such as the National Credit Act.