Service Fee Calculation and Pro‑Rata Adjustment
The service fee is a small monthly charge that covers the cost of maintaining a loan — things like payment collection, account administration, statements, and record‑keeping.
By law, South African lenders (under the National Credit Act, Regulation 44) may charge a maximum of R60 per month (excluding VAT) for service fees on short‑term loans.
The application automatically calculates, adjusts, and enforces these service fees based on the loan’s setup, repayment frequency, and timing — ensuring every fee is fair, accurate, and compliant with legal limits.
Where Service Fees Come From?
Each loan product has a monthly base service fee defined in its configuration screen. This is called the Monthly Basic Service Fee (Excluding VAT) — usually R60 per month, per NCR standards.
From there, the system adjusts this base amount automatically according to:
Repayment frequency (monthly, fortnightly, or weekly)
The length of the first repayment period (for pro‑rata calculation)
VAT, where applicable
Any caps or maximums defined in the product setup
The user doesn’t have to calculate anything — everything happens automatically during the loan quotation and schedule generation.
Step‑by‑Step: How Service Fees Are Calculated
The service fee process happens in stages — from loading the product settings to applying the first‑period adjustment.
Step 1 — Retrieve the Product’s Monthly Fee
The system first reads the fee defined in the product setup (for example, R60 per month). This base amount is saved as an ex‑VAT monthly service fee.
Step 2 — Adjust for Repayment Frequency
Loans can be repaid monthly, fortnightly, or weekly. To make sure each borrower pays a fair share, the system divides the monthly fee by a frequency factor — this ensures shorter repayment cycles pay smaller service fees each time.
Monthly
1.00
R 60.00 per month
Fortnightly
2.14
R 60 ÷ 2.14 ≈ R 28.00 per fortnight
Weekly
4.29
R 60 ÷ 4.29 ≈ R 14.00 per week
This adjustment guarantees that even if payments are made more often, the borrower’s total monthly service fee never exceeds the regulatory R60 limit.
Step 3 — Apply Pro‑Rata Adjustment for the First Period
Loans don’t always run for an exact 30‑day month between payout and first instalment. The system therefore pro‑rates the first service fee using the actual number of days between the payout date and the first repayment date.
Here’s how it works:
Calculate the number of actual days between payout and first repayment.
Compare it to the standard cycle days (30 days for monthly loans).
The ratio (actual ÷ standard) becomes the first‑period factor.
The regular service fee is multiplied by this factor.
Example formula in plain terms:
First‑period service fee = (actual days ÷ standard period days) × monthly service fee.
Step 4 — Apply VAT (If Applicable)
If VAT applies to service fees, the system multiplies the fee by 1.15 (15 % VAT). This is stored as the service fee including VAT, which forms part of the instalment total.
Step 5 — Enforce Maximum Limits
Once all adjustments are made, the system checks that:
No monthly service fee (excluding VAT) exceeds R60, and
If defined in the product setup, no total extended service‑fee amount exceeds its maximum limit.
Any value higher than the allowed limit is automatically lowered to the permitted maximum.
Example 1: Standard Monthly Loan
Base monthly service fee: R 60
Repayment frequency: Monthly
Payout date: 10 April 2025
First instalment date: 30 April 2025 (20 days difference)
VAT: 15 %
Full monthly period = 30 days
Actual first period = 20 days
First‑period factor = 20 ÷ 30 = 0.67
Pro‑rata service fee (ex VAT): R 60 × 0.67 = R 40.00
VAT (15%): R 6.00
Service fee (incl. VAT) = R 46.00
Displayed in the first instalment as “Service Fee = R 46.00”
Example 2: Weekly Loan
Base monthly service fee: R 60
Frequency: Weekly (4.29 weeks ≈ one month)
Cycle factor: 30 ÷ 7 = 4.29
Weekly fee: R 60 ÷ 4.29 ≈ R 14.00
VAT @ 15 %: R 14.00 × 1.15 = R 16.10 per week
✅ Borrower pays about R 16.10 weekly in service‑fee‑inclusive instalments, which adds up to R 60 (ex VAT) per month — precisely within the NCR regulation.
Calendar‑Month vs Daily Basis
In the product setup, there’s also a toggle called “Calendar Month”. It tells the system how to interpret “first‑period days” when computing pro‑rata service fees:
ON (Calendar Month)
Service fee calculated using actual month lengths — e.g., April = 30 days, February = 28 days.
For conventional monthly repayments.
OFF (Daily Basis)
Service fee calculated strictly by days between payout and first instalment, regardless of the calendar month.
For flexible or irregular repayment cycles.
This configuration ensures accuracy whether you’re using strict calendar logic or daily proportional logic.
The Service Fee Calculation Engine ensures every borrower pays only for the time their loan is active, no more and no less. It automatically converts monthly fees to weekly or fortnightly equivalents, adjusts the first period using calendar‑day accuracy, adds VAT where applicable, and enforces NCR limits with no manual input required. The result: fair, transparent, regulation‑compliant service fees every time.
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