2 February 17
Are you thinking about taking out a loan? When borrowing to buy goods we all have some basic consumer rights. Here’s what you need to know about credit contracts.
Lenders add interest and fees to a loan, meaning you repay more than the amount you originally borrowed. This all needs to be writing, in what’s called a ‘disclosure document’.
The annual interest rate must be clearly stated along with the total amount of interest to be paid over the life of the loan. Sometimes lenders refer to weekly or daily interest rates – if you’re not sure, ask the lender to clarify. As for fees, these can be charged for various reasons, from setting up a loan (establishment fees), to missing a payment (default fees) or even early repayment.
If the interest and fees sound too high, take some time to think about it and shop around for other deals.
Changed your mind? There’s a short ‘cooling off’ period at the start of a loan in which you can still get out of a contract.
If you received your disclosure statement in person, you have 5 working days from then to cancel the contract. If it was emailed or faxed, you get 7 days from when it was sent to you; and if it was sent by post, you have 9 working days from when it was mailed.
It’s a good idea to cancel your contract in writing so that there’s a record of it. Just be aware that if you have already taken the items that you financed, you probably won’t be able to return them, so you would need to find another way to pay for them.
Your contract may let your lender change the terms of your loan - sometimes without your agreement or advance notice. For example, these might be changes to interest rates or fees, how interest or fees are calculated, or the timing or amount of payments.
Lenders have to communicate these changes, usually within 5 working days of the change. But they don’t always need to tell you personally. They might put a notice on their website or their physical premises. So it pays to check your loan statements (and keep an eye on the payments coming out of your account).
If you hit an unexpected rough patch – for example, due to job loss, illness or a breakup – that makes it difficult to keep up with your debt repayments, you can make a hardship application to the lender. The key is to contact them early, before getting too far behind, as there are criteria around exactly when you can apply for hardship.
Lenders may agree to let you postpone payments for a short time, or reduce the amount of your regular payments by extending the term of the loan. Remember that changes like these will probably increase the amount that you owe overall.
If you can afford it, you can pay back part or all of your loan early. It’ll save you money on interest – however, you might need to pay extra fees. Also known as ‘break fees’, early repayment fees can be charged by the lender to make up for the interest they would have otherwise received from you.