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Whether you’re considering a loan or looking to set up an overdraft with your bank, it’s important to know all of your rights when borrowing money.
Although it is uncommon – and certainly not a practice that we do here at Bamboo – it is not unheard of for creditors to put a lot of pressure on people that are borrowing money, chasing them for repayment a lot earlier than they’re legally allowed to.
By knowing your rights, you could not only protect yourself from any malpractice or legal action from lenders, but also prevent a lot of unnecessary stress and, ultimately, save yourself money in the long run.
Make sure you sign a credit agreement – they guarantee your rights when borrowing money
A credit agreement is a bit like a contract between you and the lender and should set out how much money you’re going to borrow, how long you have to pay the money back, any extra costs or interest you might have to pay if you miss a payment, the level of interest and whether the interest is fixed.
It should also set out what type of credit agreement you’re taking out and –importantly – whether or not you’re able to cancel the agreement or pay the amount off early. You should also be given a summary of the agreement, a pre contract credit information or “SECCI” document.
While these credit agreements are put in place for the benefit of the lender (without a credit agreement, it is very difficult for them to get their money back without going through the courts), they also guarantee you basic statutory rights under the Consumer Credit Act.
Be careful though, some agreements are not covered by the Consumer Credit Act
That being said, if you’ve taken out any of the agreements listed below, they’re not covered by the Consumer Credit Act and you’ll need to have a good nose through your contract to find out your rights.
- Any agreements to hire a meter (whether gas, water or electricity)
- Any agreement that requires you to pay everything that you owe in full
- Credit union loans
- Loans from your employer
Can you cancel a credit agreement when borrowing money?
Yes and no. If it’s any time before you sign the agreement or up to 14 days after signing it, you can cancel the agreement without giving a reason.
However, when borrowing money, you do need to give the lender notice that you are cancelling the agreement. Citizen’s Advice recommend that you put this is writing and send it by recorded delivery, keeping a copy for your records. However, if it’s getting close to the 14-day mark, then it’s fine to give notice over the phone – just make sure to note the date, time and who you spoke to and to send an email or a letter after the initial call confirming everything you agreed.
That being said, there are some agreements that you can’t cancel. Bank overdrafts, mortgages, secured loans, small loans of £50 or less and loans to pay death duties cannot be cancelled.
What should I do if I cancel my credit agreement?
If you cancel a credit agreement, it goes without saying that you’ll need to give back any money that has already been given to you – whether in the form of an advance or first payment. If you’ve had goods installed, you’ll either need to pay for them or return them.
Alternatively, if you’ve paid a deposit or part-payment for goods or services which you are buying on credit, you should get all of your money back when you cancel. (Be careful though, this doesn’t apply if you took out a separate loan to cover the cost of the goods or service.)
Do I have the right to pay off some of my loan early?
If, under the terms of your agreement, you’re eligible to pay off some of the loan early then, as part of the Consumer Credit Act, you’re entitled to a rebate of any interest and charges you’ve paid to date.
In order to get this, you should write to your lender and request an early settlement amount for the loan. Once you’ve requested this, the lender is obliged to tell you the amount and give you 28 days (from receiving the request) to clear the amount in full. This amount should take into consideration the rebate amount, and will reflect when you took out the loan and how much you’ve already cleared.
Can I pay off a little bit of my loan early?
Definitely. This is actually quite a common thing to do – when people get an unexpected windfall, for example – and is called partial early settlement.
Of course, you won’t get as much of a rebate as if you’d cleared the whole amount, but it’ll still affect how you pay the rest of the loan. (Plus, if you’re behind with any, partial early settlement payments will be used to pay off the arrears first.)
Here’s where your credit agreement comes in handy again. If your credit agreement states how any partial early payment will affect your loan instalments, then you’re bound to those terms.
However, if your agreement doesn’t address this, then you can negotiate with your lender about whether to reduce the monthly amounts (but continue paying for the agreed loan period) or to maintain the same repayment amount and finish repayments early.
Although reducing the payments may give you more money in the bank in the short term, if you can afford to keep up the same repayment amount and finish the loan earlier, you’ll save yourself money in the long term.
And remember, you’re not obliged to pay off the loan early just because you requested the figure – don’t feel pressured into paying the full amount unless you’re certain it is the right decision.
Bamboo’s Top Tip:
If your lender doesn’t answer your request for information or you think that they might be charging you too much, get advice from a specialist adviser.
Your rights if you fall behind on loan repayments
Although you should make every effort to stay on top of your repayments, when you’re borrowing money, sometimes unexpected things happen that mean you might miss a loan repayment.
Maybe your wages don’t get paid on time, perhaps there’s a mix up and you get underpaid or you find yourself out of work. When things like this happen, it’s easy to prioritise rent and food and to fall behind on your loan repayments.
Luckily, even when you’ve fallen behind on your repayments, you’re still protected by the rights guaranteed by your credit agreement.
Firstly, if you fall behind with payments, your lender must send you an arrears notice and a Financial Conduct Authority (FCA) information sheet. These give you important information about your rights and some advice on where to get help to sort out your arrears.
On top of that, and before they can take any action to get back what you owe them, your lender must send you a default notice and another FCA information sheet. This will tell you what you need to do in order to put things back on track and what will happen if you still don’t pay what you owe. Their back on track is important as additional interest can clock up.
Your lender also has to send you a notice if they want to add on any additional charges for any reason. (If you’re late with a payment, for example.)
If your lender doesn’t give you all of the right information when they should, then they’re not allowed to take you to court (or even add more interest or charges) until they’ve sent you the right notice. Should your lender try to take further action in this situation, make sure that you get advice about what you can do. The Citizen’s Advice Bureau and The Money Advice Service are great places to start. If they can’t help you, they’ll be able to send you to an expert who can.
At Bamboo, all of our unsecured and guarantor loans guarantee your rights under the Consumer Credit Act when you’re borrowing money. Plus, if you want to pay them off early, there’s no extra charge and you can get the statutory rebate. To find out how much you could borrow today take a look at our loan calculator. Representative 49.7% APR. A guarantee may be required.
- Author Jack Barclay
- Posted 22 September 2016