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Using credit

It is very common today for people to make use of credit when purchasing goods. Credit enables people to delay payment or to pay for something over a set period of time. It can also provide consumers with some added protection when buying goods or services. The consumer credit industry is legislated for by The Consumer Credit Act 1974.

Types of credit

Credit can take many different forms and it is important to realise that in order to advise someone in relation to credit you must first identify the type of credit that applies.

Credit Card

When using a credit card there are three parties involved in the transaction: the debtor (person obtaining the good or service), the supplier (e.g. the shop) and the creditor (e.g. credit card company) but when the debtor uses the credit card he/she is using it under an agreement with the creditor. The supplier also has a pre-existing relationship with the creditor to be paid the amount of the transaction less commission.

Hire Purchase Agreement

Hire Purchase agreements are commonly used to finance the purchase of cars. Hire Purchase is a bailment (hire) of goods with an option to purchase at the end. The consumer does not own the car until the final payment has been paid so will need the permission of the finance company to dispose of it before the hire purchase agreement has finished. If a consumer pays for a car through this means the car will be sold by the garage to the finance company who then bail the car to the consumer. With these type of transactions, the consumer has entered into a contract with the finance company - not with the dealer who supplied the car. If, therefore, the car proves to be defective the consumer's rights will only be exercisable against the finance company.

Conditional Sale Agreement

This is an agreement which is subject to the condition that the consumer will not own the goods until the goods have been fully paid for. This type of agreement works in exactly the same way as Hire Purchase; the contract is once again with the finance company and not the supplier of the goods. The main difference is that this is a sale of goods contract where the consumer will own the goods at the end of the term of the agreement.

Credit Sale Agreement

This is used when a store is financing its own goods or services to increase sales. In this type of agreement the consumer will own the goods immediately and therefore unlike with conditional sale and hire purchase, the finance company will have no rights over the goods

Loan linked agreement

This occurs when a consumer agrees to purchase goods or services from a trader and the trader has an agreement with a finance company whereby they agree to loan their clients money to fund the cost of the goods or services. This type of agreement is distinct from Hire Purchase and Conditional Sale because the finance company loan the money to the consumer to finance his purchase; the consumer then purchases the goods or services from the trader. In reality the money will usually go straight from the loan company to the trader.

Can a finance agreement be cancelled?

If you sign a finance agreement away from trade premises (e.g. in your own home) you will receive a 5 day cooling off period in which to cancel. Usually when you enter into a credit agreement, the finance company has to agree to the deal and this usually means that they will have to physically sign the agreement. In such cases you will receive a second copy of the finance agreement by post once it has been signed. The cooling off period then starts from the day after you receive the second copy. In some situations the supplier of the goods or service can sign on behalf of the finance company. Where this occurs the finance company is still required to send a notice of cancellation rights and in such circumstances the 5 days will again run from the day after the notice is received.

NB Finance agreements signed on trade premises are not cancellable. The courts have tended to define trade premises very broadly and it will probably include shows and exhibitions that a trader is attending and may even include a salesman's car.

How do I cancel an agreement?

To cancel an agreement you should:

Write to both the finance company and the trader within the cooling-off period stating that you wish to cancel the agreement
Include any reference/account numbers or dates of agreement to help them deal with your letter
Keep a copy of the letter
Send the letter by recorded delivery so that you have proof that you have written to them
If they will not cancel or do not reply contact Consumer Direct for advice on 08454 040506

NB Notice must be given in writing and it is valid from the time of posting even if the letter gets lost.

Is it possible to get out of a finance agreement even when I do not have the option of cancelling?

For a credit agreement to be effective it must have been properly executed. Where this is not the case you may be able to argue that no contract exists and so withdraw. For an agreement to be properly executed it must have been signed by all parties.

If the agreement has not been signed by the finance company or the supplier of the goods or services has not signed on behalf of the finance company, the agreement will not have been properly executed and you will be entitled to withdraw.

Notice of withdrawal must be given before the finance company agree to the deal (NB sign the agreement)

How do I withdraw from the agreement

To withdraw from the agreement you must

inform the finance company before they agree to the deal by first verbally advising that you are withdrawing (if you rely only on the post the finance company may agree to the deal before your letter arrives).
follow up your verbal withdrawal by writing to the finance company to inform them that you are withdrawing and confirming the details of the telephone conversation and the date and time this occurred.
send the letter by recorded delivery so that you have proof that you have written to them and keep a copy.
If they will not allow you to withdraw or do not reply to you contact Consumer Direct for advice on 08454 040506

Can I settle the agreement earlier than the agreed date?

In most cases you can end an agreement before the agreed date, although this is not always advisable as it can be expensive. If you do want to settle an agreement early you will need to contact the finance company to request an early settlement figure (the amount you will need to pay to end the agreement). The amount payable should be calculated in accordance with the Consumer Credit Act 1974. If you think you are being quoted an unreasonable amount, or wish to query the calculation, you should contact Consumer Direct for advice on 08454 040506.

Extra protection if you buy goods or services using a credit card or through a loan-linked agreement

If you use a credit card or enter a loan-linked agreement to pay (or part pay) for goods or services that cost between £100 and £30,000 the finance company will be equally liable for any breach of contract or misrepresentation made about them by the seller. For example if the goods you buy are faulty and you paid more than £100 for them you can pursue the finance company, in addition to or instead of the trader, for compensation. This can be particularly useful if the supplier of the goods has gone into liquidation or is being unco-operative.

NB This protection only relates to goods purchased using a credit card and not to debit cards.