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Buying on credit can bring its own problems,
but it can give you extra rights too.
Sometimes it's not always easy to get credit or the credit
deals that are available are less than generous. It is as
important to shop around for credit as for any other purchase.
There's no easy way out of debt, but the sooner you face
up to the problem, the easier it will be to solve.
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Buying on credit
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Consumer Information Line
08457 22 44 99
OFT guidance on where practical help may be
obtained.
Open UK office hours; local call rates within the UK.
The following leaflets are available from
the OFT:
Creditwise
Debt
Your mortgage
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Most people at some time will use credit to purchase goods
or services, for example, by obtaining a personal loan through
a bank or building society, hire purchase, or a credit agreement
with a trader. Before buying anything on credit you should
consider the following points.
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Work out what the total cost of the loan will be.
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Shop around for credit: how much will a loan cost to
repay each month and for how long? Check also the annual
percentage rate of charge (normally referred to as APR).
Generally speaking, the lower the APR the better the
deal. Some traders offer interest free credit (0%APR)
but you will need to take care that you are not paying
higher amounts in other ways; for example, it may be
a higher cash price than you would pay for the same
goods elsewhere.
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Make absolutely sure you have read and understood all
credit agreements before signing them. If there is anything
you do not understand, ask.
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Make sure you can afford to pay back the loan and the
interest - and still have enough to cover all your other
commitments.
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Check whether the loan has a variable rate of interest.
If it has, your repayments can go up as well as down.
Make sure you can really afford it.
Some loans are only given if they are secured on your home.
These are not available if you rent. A secured loan gives
security to the lender, not to you. If you cannot keep up
with the repayments the lender can sell your home to cover
any loss. You might get a lower rate of interest with a
secured loan but you could have a lot at stake.
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Your credit reference
Credit reference
agencies
The two main agencies in the UK are:
Experian Ltd
PO Box 8000
Nottingham
NG1 5GX
tel 0115 934 4050
Equifax
Europe
Dept 1E
PO Box 3001
Glasgow G81 2DT
tel 0990 783783
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No-one has a right to credit. Before giving you credit,
lenders - such as banks, loan companies and shops - want
to check whether you are an acceptable risk. To help them
do this, they may check with firms called credit reference
agencies to get some details about you and your credit
record.
The main credit reference agencies keep information on
their computers about almost every adult in the UK.
These agencies do not keep blacklists or give any
opinion about whether or not you should be given credit.
They simply provide information about your credit record.
The credit reference agency will not be able to tell you
why you were refused credit. It is the lender who decides
whether you are an acceptable risk.
Your rights
If you are refused credit you have certain rights. In particular
you have the right:
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to know the name and address of the credit reference
agency that the lender contacted for details about you;
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to see any information held about you by that agency;
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to correct any inaccurate information.
The Office of the Data Protection Commisioner
has responsibility for credit reference agencies and produces
a leaflet No Credit? on how to consult your credit
record and correct any mistakes. You can order copies of
it by phoning 0870 44 21 211.
Credit scoring
Many lenders use credit scoring systems which allocate
points to various pieces of information given on your application
form, such as your age, your occupation and whether you
own your home. These points are added together to produce
your credit score. This helps the lender predict whether
you are an acceptable risk. Different lenders have different
systems and pass marks, so you can be turned down
by one but accepted by another. Your credit score is not
part of the file kept on you by the credit reference agencies.
Lenders do not have to tell you exactly why they have turned
you down, but they should give an indication of the reason.
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Cancelling a credit agreement
| "If you can cancel,
act quickly, as there are tight time limits" |
You have a short time in which to
change your mind if all the following points apply.
- You signed the credit agreement after discussing the
deal face to face with the trader.
- You signed away from the contractor's or lender's premises.
- The amount of credit is between £50 and £25,000 and
is not secured on your property.
When you sign, you should be given a copy of the credit agreement,
which sets out your cancellation rights. You should also receive,
by post, a second copy or a notice of your cancellation rights.
You cannot normally use these rights to cancel purchases
made with a credit card because you will have entered the
agreement for the card some time ago.
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Withdrawing from an agreement
| The effects of withdrawing
are the same as cancelling |
You can withdraw from any agreement
before it has been signed by both you and the lender. This
means acting quickly. If you have already signed, you will
have to let the lender know that you have changed your mind
before they sign. It's probably best to phone, fax or e-mail
and then confirm by post. The effects of withdrawing are the
same as cancelling.
This is particularly important with agreements secured
on your home where the lender must send you an advance copy
of the agreement at least seven days before sending the
actual agreement to be signed. The lender must not contact
you during this consideration period to give you
time to think about the deal (but you can contact them).
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Credit brokers' fees
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More detailed information
More detailed information on the Right to recover brokerage fees
(A guidance note outlining the Director General's views
on recovering brokerage fees (section
155)) is available as an Adobe Acrobat
4.0  document (41kb), and as a Word 97 file
(65kb).
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If you use a broker to get a loan,
including a mortgage or a loan secured on your home, you will
probably be charged a fee for the service. Make sure you know
what this will be before you commit yourself. If, however,
you do not enter into a loan agreement within six months of
being introduced to a possible lender, the broker can only
charge a fee or commission of £5 and if you have already paid
more you can recover the excess. Similarly, other fees, such
as a survey fee paid to the credit broker in connection with
a loan that you do not eventually take up, are also refundable
if you are borrowing £25,000 or less. |
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Extra protection when
using credit
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More detailed information
More detailed information on this subject
is available from this website in leaflet OFT303 Buying
or selling on credit - who is responsible if things go wrong?
This is available as an Adobe Acrobat
4.0 document (35kb), and as a Word 97 file
(58kb).
Also available on this website as an
Adobe
Acrobat 4.0 document (19kb), or as a Word
97 file (64 kb), is an article on Rights when purchases
go wrong. This was written by the OFT's Head of Consumer
Credit Policy for NACAB's Advisor magazine September/October
2000.
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Buying on credit does give
you some extra rights, for example, if goods are faulty. If
a trader has an arrangement with a finance or credit card
company to allow you to pay by credit, you have extra protection.
This applies if the goods cost more than £100 but less than
£30,000 including VAT. The credit company is equally liable
for a breach of contract or misrepresentation by the trader.
For example, if the goods are not delivered or are not what
you ordered, or a holiday was wrongly described or you did
not get what you paid for, you may be able to claim from the
credit card or finance company. |
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Settling up early
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You may find that part way through
repaying your loan, you have enough money to pay off the whole
amount owing in one go. If so, you could be entitled to a
rebate of some of the charges you would have paid over the
rest of the life of the loan. It depends on the type of agreement
you have with the lender. It can sometimes cost more than
you expect to settle up early and in a few cases you could
still have to pay more than the original amount borrowed.
Even so, settling early will cost less than carrying on with
the repayments plus interest for the full length of the loan. |
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Getting out of debt
| "The sooner you
face any debt problem, the easier it will be to solve it" |
The sooner you face any debt problem,
the easier it will be to solve it. Don't ignore it and hope
it will go away. If you do, you could end up in court, lose
the goods you've bought or find it difficult to get credit
in future. You might even lose your home. Even if you aren't
up to your neck in debt, it's suprising how quickly it can
build up and how long it takes to pay back.
Work out exactly how
much you owe, who you owe it to and what you can pay back.
This will help sort things out in your mind, and help your
creditors to see where you stand. Contact the creditor(s)
as soon as possible to explain the problem and try to come
to some agreement about repayments. Your debt won't be written
off but you might be able to pay it back in smaller payments
over a longer period of time. This will probably cost you
more in interest payments in the long term but may be more
manageable now.
Follow a five
point action plan:
- How much do you owe? List your debts. Work out
when payments fall. Identify the priority debts.
- How much do you earn? Work out how much money
you have coming in. Are you claiming all the benefits
you are entitled to? Are you paying too much tax?
- What do you spend? List your essential and less
essential spending. Compare it with your incomings. What
do you have left over to offer to creditors?
- Nothing left over? Are there any areas in which
you can cut down your spending? Is there any way in which
you could earn extra money?
- Talk to your creditors. Send them a financial
statement showing your income and outgoings. Explain your
offer to pay off your debt.
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