Your rights when you borrow money
When you borrow money you should be asked to sign an agreement which sets down what both sides are agreeing to. For most credit agreements the borrower also has legal rights (statutory rights) under the Consumer Credit Act.
On this page you can find out how you can tell if the agreement you signed is covered by the Consumer Credit Act and what your rights are if it is, including:
- what information you must be given before and after you sign a credit agreement, so that you know what you are signing up to
- whether you can cancel an agreement and how to do this
- what happens if you want to pay an agreement off early.
If you borrow from an illegal lender (loan shark) you won't have any rights under the Consumer Credit Act so try to avoid borrowing in this way.
For more information about illegal lenders, see Loan sharks.
Most types of credit and hire agreements are covered by the Consumer Credit Act which gives you some important rights. An agreement covered by the Act is called a regulated agreement. An agreement will be regulated if:
- the borrower is an individual, not a company and
- it is not an exempt agreement.
If you signed a credit agreement before 6 April 2008, it could only be a regulated agreement if it was for credit under a certain amount.
If your agreement is regulated under the Consumer Credit Act, the lender must give you a written copy of the agreement setting out:
- what type of credit agreement it is, for example, credit sale, hire purchase or conditional sale
- the true cost of the credit, called the Annual Percentage Rate (APR)
- the amount of each payment, when it is due to be paid, and how it is made up (loan, interest, administration charge)
- your cancellation rights and whether you can pay off the loan early.
For more information about APR, see Getting the best credit deal.
If your agreement doesn't include all this information and you have problems paying, the lender may not be able to take action to get their money back without the permission of a court.
A secured loan is one which gives the lender a right to repossess your home if you don’t keep up the repayments. The most common type of secured loan is a mortgage.
Some secured loans are covered by the Consumer Credit Act but not mortgages. If your secured loan is covered by the Act, you may be able to apply for a Time Order, if you have problems paying back what you owe. A Time Order is a special order that the courts can make, allowing you time to pay. This can help you keep your home if you fall behind with payments.
If you are behind with payments on a secured loan, get help from an adviser straight away. You can get advice from a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
The following kinds of agreement are not covered by the Consumer Credit Act:
- agreements to hire gas, electricity or water meters
- agreements where you have to pay off what you owe in full each time, for example, charge cards or milk bills
- credit union loans
- loans from an employer
- some short term trade agreements.
A Green Deal Plan which provides credit of:
- up to £25,000 which is wholly for business purposes or
- over £25,000 which is predominantly for business purposes.
Your rights for these agreements will only depend on what is written in the contract, not on what is in the Consumer Credit Act.
Lenders should you give you the following pre contract information before you sign an agreement, so that you know what you are signing up to:
- details of the goods and services you have asked for
- the amount of credit or credit limit
- the interest rate
- how you should repay the amount borrowed including how much you will have to pay, the amount of the instalments and how often payments are due.
In practice lenders often only give you this information just before they give you the agreement to sign. You shouldn't feel under pressure to sign an agreement if you haven't had time to read the information and take it in. You can always ask to take away the information to look at and come back to sign the agreement later.
Once you have signed an agreement, the lender should send you a statement at least once a year, showing what you owe under the agreement. But you can ask for a statement at any time.
You can cancel a credit agreement at any time before you sign the agreement or within 14 days of signing it. You don’t have to give a reason. This includes credit bought over the phone, by mail order, through the internet or digital TV.
You must tell the lender that you are cancelling the agreement. This is called giving notice. It’s best to put the notice in writing and send it by recorded delivery if you can. Remember to keep a copy for your own records. You can also give notice verbally. You might need to do this if the 14 days is almost up. If you give the notice verbally, make sure you keep a record of the date and time and who you spoke to and follow it up in writing.
Agreements you can't cancel
You don't have the rigt to cancel the following types of agreement:
- bank overdrafts
- mortgages or secured loans
- small loans of £50 or less (except hire purchase or conditional sale agreements)
- small loans of £35 or less where the agreement was made away from the lender's offices
- loans to pay death duties.
Even if you don't have a right under the Consumer Credit Act to get a refund when you change your mind, it's worth checking the agreement you signed to see whether it says you can return the goods within a certain time limit and have a full refund.
If you cancel a credit agreement
If you cancel a credit agreement you'll need to return any money given to you in advance under the agreement and pay for goods already installed, such as a kitchen or conservatory. If you bought goods on credit and cancel the agreement, you’ll have to pay for them in another way or return them.
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. However, this does not apply if you arranged your own credit, for example you took out a loan separately to pay for the goods or service.
If you're having trouble paying back your loan, you should contact your lender, or get free, independent advice from a debt advice agency such as a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
If you want to pay off a loan early, under the Consumer Credit Act you should get a rebate of any interest and charges you’ve paid. To do this, you need to write to the lender and ask them to give you an early settlement amount for the loan. This is the total amount you must pay to clear the loan in full, including any rebate.
The lender must tell you the amount if you ask and allow you 28 days from when they received your request to pay the amount off in full. How much interest you have to pay depends on when you took out the loan and how much of it you have already paid off.
You don't have to pay off the loan just because you asked for an early settlement figure. You can carry on with your usual instalments instead.
If the lender doesn't answer your letter asking for an early settlement amount or if you think they are charging you too much, get advice from a specialist adviser.
Paying off part of the loan early
If you don’t want to pay off the whole amount owed, you can still pay off part of the loan early. This is called partial early settlement. The amount of rebate you get will be less than paying the loan off in full.
Paying off part of the loan early will affect how you pay the rest of the loan. The credit agreement may be clear about how any partial early payment will affect your remaining loan instalments. If it doesn’t say anything about this, you can negotiate with the lender about whether you reduce the regular instalments or pay the rest of the amount owed over a shorter period of time.
You must tell the lender verbally or in writing that you intend to pay off part of the loan and make the payment within 28 days. Once you’ve made the payment, ask the lender to confirm how much is left to pay and how it affects the rest of the money owed.
If you’re already behind with your payments under the loan agreement, any partial early settlement payment you make will be used to pay off the arrears first.
Paying off part or all of the Green Deal Plan early
In England, Wales and Scotland you can get energy efficiency improvements by paying for them through instalments on your electricity bill. Paying through your bill is like a loan. This is called a Green Deal Plan. It is a consumer credit agreement.
You will be able to repay a Green Deal Plan early, in part or in full at any time.
If your Green Deal plan was taken out before 16 May 2014, and if the loan was for less than 15 years and the early repayment is less than £8,000 there is no charge for repaying early. If the loan is to be repaid over 15 years or more and is for £8,000 or more, you can be required to pay the total loan amount plus the total amount of interest that would have been paid over the course of the original term of the loan.
If your Green Deal plan is taken out on or after 16 May 2014, you will not be charged any early repayment fees.
More about Green Deal finance on www.gov.uk
Under a hire purchase or a conditional sale agreement you do not own the goods until you have paid them off in full. This means you can end the agreement and return the goods at any time. However, you may still owe money depending on how much you have paid so far.
For more information about ending a hire purchase or conditional sale agreement.
When can the lender end a credit card agreement
A lender can end a credit card agreement by giving you two months notice in writing. They can also end your right to use your credit card either permanently or for a temporary period, but they must tell you in writing that they are going to do this and have a good reason. For example, the lender might suspect you of fraud or have a reason to believe you won’t be able to repay what you owe.
If your card is refused because you’re over the limit this doesn’t mean your agreement has been ended. You should be able to put things right by paying back some of the money owed or reducing the amount you want to spend.
If you fall behind with payments the lender must send you an arrears notice including a Financial Conduct Authority (FCA) information sheet. They don't have to do this in the case of a Green Deal Plan. This gives you key information about your rights and tells you where you can get help and advice to sort out the arrears. You can get the FCA information sheets from the FCA website at www.fca.org.uk.
Before they can take further action to get back what you owe, the lender must send you a default notice which must also include an FCA information sheet. The default notice tells you what you need to do to put things right and what will happen if you still don't pay what you owe.
The lender also has to send you a notice if they want to add on charges, for example, because you are late with a payment.
If the lender doesn't give you the right information when they should, they're not allowed to take you to court or add more interest or charges on your arrears until they've sent you the right notice. If a lender does try to take further action in this situation, get advice about what you can do.
If you fall behind with payments under a credit agreement you can get help, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by e-mail, click nearest CAB.
For more information about different types of borrowing and choosing the best credit deal see Borrowing.
You may also find the following Adviceguide information helpful:
- Help with budgeting
- Help with debt in England, Wales and Northern Ireland
- Help with debt in Scotland
The Money Advice Service is a free, independent service. Their website (www.moneyadviceservice.org.uk) has lots of useful information about borrowing and managing your money.
Go to their website for more information about: