When you sign a credit agreement for goods, services or a cash loan, you are agreeing to buy money at a cost, namely the interest you pay over time to the company who loans it to you. Credit ranges from gold cards targeted at high-income earners to moneylending loans aimed at lower income groups. Contrary to what might seem fair, those on higher incomes generally pay less for their loans, as most financial institutions appear to take the view that there is less risk involved in lending to those with more money in the first place. An exception to this is credit unions, which cannot charge above a certain interest rate by law, and lend on the basis of your membership and savings record. The Debt Picture Consumer Credit Act 1995 gives you a number of rights that vary depending on the type of credit being offered to you. This section aims to give an outline of these rights. Most types of personal credit are covered by the Act, though credit unions are not.
In general, although there are some exceptions, four important elements must be present in a credit agreement. If any of these are absent, the agreement will generally be unenforceable. That means that the company cannot legally re-claim the money they have loaned you. The things to watch for are as follows.
This depends on the type of credit you are considering. If the agreements fail to include the details below, they may be unenforceable. However, if a court decides that the failure was not deliberate and has not had a negative effect on you (the consumer), the agreement will still be enforceable against you.
The following are some examples of the types of information that must appear in each case:
Credit card agreements must tell you for example the credit limit (if there is one), interest rate (APR or Annual Percentage Rate) and when or how the agreement may be varied. The agreement must also contain details on how you may use the card, the terms of repayment and how you can terminate the agreement.
Hire purchase agreements must tell you the cash price of the goods, the total hire purchase price and details of the installments that you will have to pay. The agreement must also tell you that the goods cannot be repossessed without a court order providing you have paid over one-third of the total hire purchase price. It must also tell you that you have the right at any stage to return the goods (by giving notice in writing and paying up to half the total hire purchase price) if you no longer want to keep them or can't afford to pay the full amount).
Agreements for cash loans such as personal or term loans offered by the banks must give you details about the total amounts and installments you must pay, together with the APR.
Moneylending agreements are only legal if the lender is licensed by the Director of Consumer Affairs. Collectors must also be authorised by the moneylender or company. The agreement must give you details about the total amounts and installments you must pay, together with the APR. You must also receive a separate repayment book containing details of the agreement and details of all payments you make. The agreement must specify any collection charges and advise you of the company's business address should you wish to make payments in this way and so avoid the charge.
Housing loan agreements (including mortgages, re-mortgages and home improvement loans) must give you details about the total amounts and installments you must pay, together with the APR and the possible effect on your repayments of a 1% rise in interest rates. You must also be warned that your home will be at risk if you fail to keep up the payments and that where endowment mortgages are concerned, the proceeds of the insurance policy may not be enough to pay off the amount of the loan.
The agreement contains a range of
information that you need to be aware of before you sign.
It should tell you for example, that you get a rebate on
interest charges if you find yourself able to pay the
loan off early,
when or why the lender can call in the loan,
what costs or penalties you may have to pay.
It may also tell you that the information you supply may be used in future for checking your credit rating. Remember by signing, you are agreeing to conditions such as this. Read the small print carefully and if you are not sure what it means, seek advice before you sign.
The Act prevents creditors hassling youunnecessarily by way of visits or telephone calls without your consent or by sending you letters with their name on the envelope. It also prevents creditors taking you to court unless they have first sent you a notice detailing what is wrong, what you need to do to put it right and when.
Don't panic, you are not alone - the downside of the credit boom in Ireland is an increase in the numbers of people experiencing problems repaying the amounts borrowed. Your creditors are likely to be sympathetic to your situation providing you are open and honest with them about your circumstances. It is our experience that if you are having difficulty in keeping things under control, it is a good idea to take stock of your situation. Take a piece of paper and on one side write down the money you have coming in each week or month, and on the other make a list of all your weekly or monthly spending and commitments. Try to be honest with yourself and involve other family members if at all possible. You can get a budget sheet listing a number of common items of expenditure from any MABS office if you feel it would help. Total everything up and identify areaswhere you could maybe increase your household income or cut back on spending. Seeing the full situation on paper can help you to identify how much you can realistically afford on your credit commitments. If this is less than you should be paying, sending the companies a copy of your budget is often an effective way of persuading them to accept reduced payments over a longer period. If you require guidance on how to go about this contact us for an appointment to speak to a Money Adviser in confidence.