When have I entered into a consumer credit contract?

When a consumer borrows money or buy goods on credit they have rights under the Credit Contracts and Consumer Finance Act. The Act applies where the borrower:

• is a private individual (in other words, they are not a company or incorporated society) and
• the credit is to be used predominately for personal, domestic, or household purposes (not business or investment purposes).

What is the Credit Contracts and Consumer Finance Act?

The Credit Contracts and Consumer Finance Act 2003 (CCCF Act) is a law that helps protect you when you are borrowing money. It sets out rules your lender must follow when lending you money. These rules mean you get useful information to help you shop around for the best credit and understand what you are agreeing to. It also helps you keep track of your debts.

What do I need to know?

You need to understand what you are getting into before you take out a loan or buy things on credit. You should know:

• how much you'll have to pay back in total (including interest)
• what repayments you need to make
• how often they are, eg, weekly, monthly
• what interest rate and fees you will have to pay
• how to cancel a loan
• what to do if you get into difficulty.

A lender must give you all this information, plus other required information, before you sign up – it’s called disclosure. Read the contract and if you do not understand something, do not sign – ask the lender to clarify, or get some independent advice.

See tips for when you are borrowing money.

What must my lender tell me?

Your lender must also give you information during the life of your loan to help you keep track of the debt while you are paying it off.

If a lender uses standard form contract terms and costs of borrowing, these should be published clearly and prominently on their website. If a lender operates from public business premises they have to clearly and prominently display a notice which states that this information is available on request, free of charge.

You can ask for a copy of the standard form terms and costs of borrowing to take away with you. This is a good idea so you can go and do your homework by comparing different loans.

Credit and default fees must be reasonable

Any credit or default fee your lender charges you must be reasonable. These fees are explained more below, but beware that the lender may not describe the fees in the same way we have. If you see a charge and don't know what it is, ask your lender to explain what it is for.

Establishment fees

An establishment fee should be the same or less than the lender's reasonable costs of processing a loan application, setting up the loan, and advancing the credit. The fee can be the average cost of establishing loans of a particular type.

Prepayment fees

If a borrower makes extra payments on their loan, or pays off their loan early, a lender may charge a reasonable fee to cover any costs or losses resulting from the early repayment. This can include administration costs as well as any losses from having to re-lend money at a lower interest rate.

Default fees

Default fees are payable by the borrower if they breach the credit contract or the lender enforces the credit contract. Default fees cannot be more than an amount that reasonably compensates the lender for the costs they incurred as a result of the borrower's breach.

Read more about fees a lender may charge.