Credit agreements – the basics

What is a credit agreement?

If you’re borrowing money, you’re getting credit – this could include overdrafts, credit cards and loans. The lender should typically provide you with a credit agreement, which spells out the details of the deal, including your rights. Both you and the lender have to agree to the terms of the agreement in order to seal the deal.

Do credit agreements cover anything else other than overdrafts, credit cards and loans?

Credit agreements also cover other types of borrowing. These include credit sale agreements, hire purchase agreements and conditional sale agreements.

What are your rights?

Some agreements are covered by the Consumer Credit Act, which includes your rights when entering into a credit agreement. These include:

• The type of credit agreement you’re entering into
• The cost of the credit, including any interest rate charges
• The amount you’ll have to pay
• When payments are due
• Your right to cancel
• Conditions involving early repayments.

However, there are types of credit agreements that the Consumer Credit Act does not cover. These include gas, electricity or water meter agreements, mortgages, credit union borrowing and money borrowed from employers, to name a few.

Cancelling a credit agreement

If you’ve purchased items but want to cancel the credit agreement, you’ll typically need to return the goods or find some other way to pay for them.

If you obtained credit for services, you’re likely to get your money refunded to you when you cancel the credit agreement, if you’ve already made part of the payment, for example, in the form of a deposit.

Early repayment

It’s possible for you to make early repayment on types of borrowing covered by the Consumer Credit Act, but you have to give the lender written notice that you’re going to do so. They’ll give you an early settlement amount, which is the amount that needed to pay the debt off early.

The Consumer Credit Act also gives you a statutory rebate for any interest or charges you’ve made. It sets out ways to calculate this rebate, so that it’s not decided on by the lender.

What if you can’t make a repayment?

If you’re behind on payments, the lender is expected to give you an arrears notice and a Financial Conduct Authority (FCA) arrears information sheet. This is to let you know what your rights are and how you can get the support to manage the payment problem.

Defaulting on repayments may show up on your credit history. This information could be used by lenders to judge your creditworthiness when you apply for another loan. You can view your credit history on your Equifax Credit Report & Score – it’s free for the first 30 days, then £14.95 monthly after that