When you obtain credit for services or goods or if you take out a loan, you are entering into a legally binding credit agreement but there are rules meaning that you can cancel this agreement if certain requirements are met.
When can you cancel a credit agreement?
If your credit agreement is covered by the legislation known as the Consumer Credit Act 1974, you have 14 days in which you are allowed to cancel. This is often referred to as your ‘cooling off’ period.
Your right to cancel ends after more than 14 days pass, but you may choose to pay off your agreement early.
Is your agreement covered?
If you’re thinking about cancelling a credit agreement, you should first check whether it is covered by the 1974 Consumer Credit Act. It will usually tell you this on the first page of your credit agreement if it is.
Many different types of agreements are covered by this act, including buy now, pay later agreements, store finance and cards, catalogues, hire purchase, payday loans, credit cards, and personal loans.
If you’re not sure if your agreement is covered or you need further advice because it isn’t, you can get professional advice from a range of companies and organisations. One of the recommended steps is to start off by contacting your local Citizens Advice Bureau.
Inform your lender
Whomever you borrow from, make sure that you sign a properly produced loan agreement created by professionals such as https://www.parachutelaw.co.uk/loan-agreement Parachute Law. Once you have signed a regulated agreement, you then have two weeks to cancel.
If you decide this is the right course of action for you, first contact your lender and inform them that you want to cancel your credit agreement. This is what is known as ‘giving notice’. It is usually best practice to tell your lender in writing but you can find out in your credit agreement who you should contact and in what way is best.
If you have already received money then you will need to pay it back and your lender has to allow you 30 days in order to do this. Legally, you don’t owe money if you have not signed a credit agreement.
Cancellations don’t just apply to financial loans. You can also return goods you have bought on hire purchase, for example. If you want to keep the goods but you don’t want to have the credit agreement, however, you will need to have an alternative way to pay.
If you have already paid part of the sum total of the goods or services, or you have paid a deposit, you are entitled to get your money back if your credit agreement is covered by the Act and you choose to cancel within your cooling off period.
Hire purchase and cars
If you decide to cancel a hire purchase credit agreement for a car, you will need to ensure that the finance company has their money back. It is not as simple as merely returning the car to a garage.
This is because, when you buy a car in this way, the garage is paid by a finance company and then you are liable to make repayments to the relevant finance firm in instalments, plus interest. If you decide to cancel this agreement, the finance company is entitled to receive the money you owe for your car within a 30-day period.
This means that the credit agreement does not simply end when the vehicle is returned to the garage, unless the finance company and garage agree to it in writing.