At some point in your life you may need to borrow money in order to deal with a project or emergency. Buying goods on credit, taking a loan, using your credit card or obtaining a bank overdraft are all ways of borrowing money. However, before you borrow money there is some information that you should be aware of under the Consumer Credit Act, which you should be given by the lender. This is called pre-contract information and it states how much money you are allowed to borrow depending on your credit history and income. You should also be told the repayment policy, interest rates and any additional charges such as administration fees. The lender should also state the penalty for late or missed payment.
Usually this information is given before you are handed the agreement form to sign. You are under no obligation to sign the papers if you feel you have not read through the pre-contract carefully. The Consumer Credit Act covers personal loans, credit and store cards and hire purchase loans. The lender should give you a copy of the agreement and without this legal document they cannot take you to court or make you pay the outstanding balance. They have 12 working days to send a copy of the agreement together with a balance statement.
Once signed, you can cancel your credit agreement up to 14 days after you have received your copy. Credit bought by mail order, over the phone or through the internet is also included and you are under no obligation to give a reason for your change of mind. This is known as “giving notice” and you should always keep records of written or verbal notices. However, your consumer rights do not cover bank overdrafts, mortgages and small loans less than £50. You will have to return any money received and, if you had partly paid some amount for a service, you should get the money back.
You have the option of paying your loan off early and the lender is required by the Consumer Credit Act to give you a settlement statement. This is the full amount you must pay to have your loan cleared. Your interest and paid charges should be rebated. If for any reason your credit application has been turned down, section 157-159 of the Consumer Credit Act allows you to access your credit file. You must receive a response within 7 days of your request. If you fail to make your payments, you will receive an arrears notice from the lender which will include the balance of the outstanding amount together with any interest charges. Without these documents, they have no right to take you to court.