Interest Rate Calculation

Interest is the cost the borrower pays for using the lender’s money. The system automatically calculates this charge based on the loan product setup, repayment frequency, and the actual number of days the loan is active.

This ensures every loan — whether weekly, fortnightly, or monthly — applies the correct interest amount, fully aligned with National Credit Act (NCA) and National Credit Regulator (NCR) limits.

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Where the Interest Rate Comes From ?

Each loan product has two potential interest settings:

• First‑loan rate: a higher rate used for new customers or first‑time borrowers.

• Standard rate: a regular rate for repeat customers.

The system then automatically picks the correct rate from the product’s configuration.

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Converting the Annual Rate to the Repayment Frequency

The interest rate shown in a product setup is often expressed per year or per month, but customers may repay weekly, fortnightly, or monthly.

To handle this fairly, the system converts the annual rate to match the repayment cycle using an internal “frequency factor.”

Repayment Frequency	Equivalent Period	Example Conversion
Monthly	1 month (30 days)	5% annual rate ➜ 5 % ÷ 12 = 0.416 % per month
Fortnightly	14 days	5% annual rate ➜ adjusted for two‑week periods
Weekly	7 days	5% annual rate ➜ adjusted for one‑week periods

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Adjusting for the First Period (Pro‑Rata Interest)

Not all loans start and end neatly on calendar months. For example, a loan paid out on 16 October with the first instalment due on 17 November covers 32 days, slightly longer than a standard 30‑day month.

The system recognizes this and adjusts the first cycle’s interest accordingly — either increasing or decreasing the charge to reflect the extra or fewer days.

This is known as pro‑rata interest, and it ensures the borrower pays interest only for the days the loan is active, not a flat “per‑month” amount.

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Fair Charging on a Declining Balance

Mobiloan calculates interest using a declining balance model. This means interest is charged only on the portion of the loan that is still outstanding, not on the original amount.

Each instalment is split into two parts:

• Interest – calculated on the current outstanding balance.

• Capital (Principal) – the part of the instalment that reduces the balance.

After each payment, the balance decreases, so the next period’s interest is smaller. This cycle continues until the loan is fully repaid.

The formula ensures every instalment gradually shifts from mostly interest to mostly capital, mirroring how real‑world credit works. It’s fair, accurate, and compliant with South African lending standards.

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6️⃣ Example in Practice

Let’s use the NCR Short Term one‑month product:

Item	Value
Loan Amount	R 1 000
Period	1‑Month (32 days)
Product Rate	5 % first‑loan monthly rate
Calculated Interest	R 61.33

Here the 5 % monthly rate is adjusted slightly upward to account for the 32‑day first period, resulting in about R 61.33 in interest.

If the first instalment had been after only 25 days, the interest would have been slightly lower.

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7️⃣Regulatory Compliance

The system continuously checks that the product’s interest rates stay within NCR limits:

• Short‑term credit: up to 5 % per month maximum.

• Other credit types: adjusted per applicable table under the NCA.

If a rate exceeds the allowable cap, the product validation will flag an error, ensuring all loans remain compliant.

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Summary of the Interest Calculation Journey

Step	What Happens	Why It Matters
Product Setup	Defines first‑loan and standard rates	Ensures regulatory alignment
Quotation	System identifies which rate applies	Tailors interest to borrower type
Frequency Adjustment	Converts annual/monthly rate to weekly, fortnightly, or monthly period	Fair distribution of cost by repayment cycle
First‑Period Adjustment	Scales interest for exact payout‑to‑instalment days	Prevents over‑ or under‑charging
Balance Decline	Charges interest on remaining amount only	Transparent and accurate pricing
Compliance Check	Verifies against NCR maximums	Regulatory assurance

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Interest is calculated fairly, proportionally, and automatically. The system converts product rates to match repayment frequency, adjusts for the actual days in each period, and applies the amount only to the remaining loan balance — giving both lender and borrower a clear, compliant, and precise result every time.