Initiation Fee Calculation
The initiation fee is a once‑off charge added to every new loan to cover the administrative cost of setting up the agreement — such as credit assessment, paperwork, and system processing.
In line with the National Credit Act (NCA) and National Credit Regulator (NCR) short‑term lending rules, the system calculates this fee automatically using a regulated formula built into the loan product setup.
Where the Initiation Fee Comes From?
Each loan product configuration stores the limits and thresholds that govern how the initiation fee should be calculated. These include:
Fixed Amount – a flat fee that always applies to short‑term loans (e.g., R165).
Threshold Amount – the portion of the loan to which only the fixed fee applies (e.g., up to R1 000).
Rate Above Threshold – a percentage applied to the portion of the loan that exceeds the threshold (e.g., 10% of the amount above R1 000).
Maximum Amount – the absolute cap on the initiation fee (e.g., R1 050).
Percentage of Capital (Max) – a regulatory limit ensuring the fee never exceeds a percentage of the total loan (e.g., 15%).
How the Fee Is Calculated ?
When a user creates a new loan quotation, the system reads the product’s initiation rules and applies them in order.
The calculation steps are:
Apply the fixed portion: The base fee (e.g., R165) is charged on all loans.
Apply the percentage portion: If the loan amount is greater than the threshold (e.g., R1 000), a percentage (e.g., 10%) is added on the excess amount.
Apply regulatory limits: The system checks that the total fee does not exceed the lower of:
The maximum amount defined in the product (e.g., R 1 050).
The maximum percentage of the loan (e.g., 15%).
Example
If a client borrows R 1 000:
Fixed fee = R 165
No percentage above threshold (since it’s at the R 1 000 level)
Final initiation fee = R 150 – R 165 as per NCA ceilings (system will automatically use correct limit).
If the client borrows R 5 000:
Fixed fee = R 165
Plus 10% of the amount above R 1 000 = 10% × R 4 000 = R 400
Total = R 565 — well below the maximum of R 1 050 So, the final initiation fee = R 565.00
If the client borrows R 20 000 or more, the formula would produce a result above R 1 050, but the system caps it at R 1 050 automatically.
VAT on the Initiation Fee
If VAT applies, the system adds it on top of the calculated amount. For example:
Fee (ex VAT): R 565.00
VAT @15%: R 84.75
Total initiation charge: R 649.75
The VAT portion is displayed separately on the cost‑of‑credit summary.
Deferred vs. Upfront Initiation Fee
In the loan product setup, there is a toggle called “Initiation Deferred.” This setting determines whether the fee is added to the loan balance or charged upfront:
Deferred (ON)
The initiation fee is added to the total amount financed.
The borrower repays the fee over the term, and interest is charged on it.
Upfront (OFF)
The fee is not financed — it is paid immediately at payout.
No interest is charged on the fee.
Example:
For a R1 000 short‑term loan with an R 150 fee and “Deferred” enabled:
Loan capital used for interest = R 1 150 If “Deferred” is off:
Interest is charged only on R 1 000, and the borrower pays R 150 upfront.
How It Appears on the Schedule ?
On the repayment schedule, the initiation fee always appears in the first instalment row, because it’s a once‑off cost applied at loan setup.
1
1 000.00
150.00
61.33
89.03
+ Insurance
1 364.55
This clear display gives borrowers visibility into exactly what portion of their first payment relates to the setup fee.
Built‑In NCA Compliance
The system’s built‑in formulas automatically ensure full compliance with NCA limits for short‑term credit:
Fixed + % formula
Based on product setup
Maximum fee (R 1 050)
Automatically capped
Maximum % of loan (15%)
Automatically checked
VAT
Applied correctly where applicable
Deferred interest charging
Controlled by product toggle
The initiation fee is a fixed, regulated charge defined by the loan product setup and applied automatically through the system’s calculation engine.
It is calculated once, added to the first repayment, and either included in the funded amount (if deferred) or
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