In short
Private lending can pay a steady, prime-linked income on a lump sum, which is what most people want from one. What it does not do is give you the money back on a date you choose — local lending has no maturity date. So it suits the part of a lump sum you can leave alone, alongside cash you can reach, rather than the whole amount.
01 — First question
What does this money actually have to do?
Before comparing returns, it is worth being honest about the job. Most lump sums are asked to do three different things at once, and they pull against each other.
- Pay for life now. Money that has to arrive monthly, reliably, to cover what a salary used to cover.
- Stay reachable. Money for the roof, the car, the medical event nobody plans for.
- Keep up with prices. Money that has to still be worth something in fifteen years.
No single arrangement does all three well. The mistake is not choosing the wrong product — it is asking one product to cover all three jobs.
The practical version
Split the amount by job first, then choose for each part. A decision made that way is much harder to regret.
02 — The fit
What private lending does well here
For the first job — income now — lending has a genuine advantage. The return is interest on a loan rather than a share of a market, so it does not swing with sentiment. Local returns are prime-linked, which means they move with South African interest rates rather than with equity prices.
Indicative, at a prime-linked rate with prime at 10.5%. Prime-linked means this figure moves when the Reserve Bank moves rates — up as well as down. Not a quote.
Compared with drawing down a market-linked portfolio, the appeal is steadiness: you are not forced to sell units into a bad month to make the income.
03 — The limit
The one thing to be clear about: access
Local private lending has no fixed term and no maturity date. Capital comes back as the underlying loans are repaid, which depends on recovery rather than a calendar. This is the single most important thing to understand before placing a lump sum.
It is not a flaw — it is what makes the return what it is. But it does decide how much of a lump sum belongs here.
| Suits private lending | Does not | |
|---|---|---|
| Money you need monthly | Yes — that is the point | |
| Money you may need in full, soon | No — keep it reachable | |
| Money with a date attached | No — a school fee, a deposit | |
| Money you can leave alone | Yes |
A reasonable shape
Emergency money in something you can reach the same week. The income-producing portion in lending. Anything with a date on it kept separate. The proportions are a conversation, not a formula.
04 — The tax
How the income is taxed
The return is interest, so it is taxed as income at your marginal rate. Individuals have an annual interest exemption — R23,800 under 65, R34,500 from 65 — which applies across all your interest, including anything from a bank account.
Two points that catch people out. There is no IT3(b) certificate, because the administrator is not a deposit-taking institution, so the interest is declared from your own records. And if capital sits in a trust or a company rather than your own name, the exemption does not apply at all.
The full detail is here, and it is worth reading before you decide which entity places the money.
05 — Before you commit
The questions worth settling first
- How much do I need every month, honestly? Not the comfortable number — the real one.
- How much must stay reachable? Enough to cover a genuine emergency without disturbing anything else.
- Is there a date attached to any of it? A wedding, a car, a move. That portion should not be here.
- Whose name should it be in? Your own, a trust, a company — it changes the tax outcome.
- What happens if rates fall? A prime-linked income eases when prime does. Can the budget absorb that?
None of these needs a financial adviser to answer, but all of them are worth answering out loud before capital moves. A consultant will work through them with you.
06 — Getting it wrong
Three ways people get this wrong
Placing all of it. The return looks better than the bank, so the whole amount goes in, and then something needs paying. Access is the constraint, not the rate.
Chasing the highest number. A slightly higher rate on money you cannot reach is a poor trade against a slightly lower rate on money you can. The question is what the money must do, not which number is biggest.
Assuming the income is fixed. Prime-linked means linked. It rises when rates rise and eases when they fall, and a budget built on the top of the cycle will feel the bottom of it.