Section 1(1) of the Prescribed Rate of Interest Act, 1975 (Act 55 of 1075) (“the Act”) (link), provides for the calculation of interest at a prescribed rate on an interest-bearing debt where the rate is not governed by any law, agreement or otherwise.
If, in your contract, agreement or terms and conditions, parties agree upon an interest rate that will be charged in the event of a default, then that agreed upon rate will override the prescribed rate of interest set by the Act. If there is however no agreement as to what interest rate will be charged, the parties will then default to the current 15.5% rate of interest that most people (who sue, or have been sued) are all too familiar with.
The current rate of interest was prescribed by Government Notice No. R. 1847 of 1 October 1993 at 15.5% per annum and has been used for the past 20 years by attorneys and clients alike.
The Minister of Justice and Constitutional Development has however deemed that this rate is no longer market-related, and in March 2014 he called for comments on decreasing the rate by 6% to 9%. The proposed 9% interest rate was calculated by taking into account the repo-rate (then 5.5% per annum) and adding to that a “margin” of 3.5%.
In relation to the Minister’s call for comments, many people (including Brett Bentley of Bentley Attorneys) said that “…we can’t see any justifiable objection to the proposed change and the relevant regulations should be promulgated in due course.”
We were ourselves of the opinion that there were no justifiable objections to the proposed change, and accordingly submitted no comment.
We can now confirm that the prescribed rate of interest has been officially reduced to 9% as at 1 August 2014 in terms of the Government Notice No. R. 554 published in Government Gazette No. 37831 of 18 July 2014, which is the interest rate which will apply against debtors (where there is no agreed upon interest rate) who are placed in mora on/after 1 August 2014.
Q: But what about debtors who were placed in mora before 1 August 2014? What interest rate will apply in that instance?
In terms of the Supreme Court of Appeal case Crookes Brothers Ltd v Regional Land Claims Commission for the Province of Mpumalanga (link), the Court confirmed a previous Appellate Division decision of Davehill (Pty) Ltd vs Community Development 1988 (1) SA 290 (A) which held that the prescribed rate at the time when interest begins to run against a debtor is fixed at that time that the debtor is placed in mora and that the interest rate remains constant, notwithstanding that the Minister may from time to time prescribe different rates.
Accordingly, where a debtor was placed in mora before 1 August 2014 , a party would still be able to recover interest from that debtor at 15.5% per annum.
However where debtors are placed in mora after 1 August 2014, interest would run against them at only 9% per annum.
Update (March 2016) : According to Government Notice No. 226 published in Government Gazette No. 39785 of 4 March 2016, the interest rate has, as of 1 March 2016 , been adjusted to 10.25%. That means that where debtors are placed in mora after 1 March 2016, interest would run against them at 10.25% per annum.
Update (April 2016) : According to Government Notice No. 461 published in Government Gazette No. 39943 of 22 April 2016, the interest rate has, as of 1 May 2016 , been adjusted to 10.50%. That means that where debtors are placed in mora after 1 May 2016, interest would run against them at 10.50% per annum.
Update (September 2017) : According to Government Notice No. 924 published in Government Gazette No. 41082 of 1 September 2017, the interest rate has, as of 1 September 2017 , been adjusted to 10.25%. That means that where debtors are placed in mora after 1 September 2017, interest would run against them at 10.25% per annum.
Update (April 2018) : According to Government Notice No. 435 published in Government Gazette No. 41581 of 20 April 2018, the interest rate has, as of 1 May 2018 , been adjusted to 10%. That means that where debtors are placed in mora after 1 May 2018, interest would run against them at 10% per annum.
Update (January 2019) : The prescribed interest rate has, as of 1 January 2019 , been adjusted to 10.25%.
Update (September 2019) : The prescribed interest rate has, as of 1 September 2019 , been adjusted to 10%.
Update (March 2020) : The prescribed interest rate has, as of 1 March 2020 , been adjusted to 9.75%.
Update (May 2020) : The prescribed interest rate has, as of 1 May 2020 , been adjusted to 8.75%.
In short, the current mora interest rate is 8.75% per annum.
