When you borrow money, you are getting credit. This could include overdrafts, credit cards, and loans. The lender, therefore, is expected to offer you a credit agreement which will outline the details of the credit deal, including your rights. This is so that both you and the lender can agree to the terms of the agreement in order to have the deal sealed.
What is a Credit Agreement
This is simply a formal understanding between someone borrowing money and the financial institution that is lending the money. Under this understanding, lenders are to provide information about the cost of credit before asking you to sign a credit agreement.
This agreement is a legally binding contract that is agreed upon by both parties and outlines the terms of repayment, the fees, other costs, and all the rules and requirements that apply to the loan.
How Credit Agreement Works
When a bank arranges to lend money to a customer, the lender and borrower have to agree to specific terms. Now, these terms include the dollar amount of the loan, how much time the borrower has to repay the money, the payment amount needed on the debt, interest rate as well as other costs charged for the loan. In other words, the terms spells out all the details of the loan.
The terms must be in place before the borrower can use the funds from the lender. These terms are usually agreed upon at the start. The borrower is to read through, the terms of the offer, and agree to them before using the funds from the lender.
What Does Credit Agreement Cover?
Apart from overdrafts, credit cards, and loans, credit agreement also covers other types of borrowing. These include credit sale agreements, hire purchase agreements as well as conditional sale agreements.
What Rights Do You Have?
Some agreements are covered by the Consumer Credit Act. It includes your rights when entering into a credit agreement. These includes:
- The type of terms and conditions you want to enter into.
- The cost of the credit, you’re entering into, including and interest rate charges.
- The amount payable
- When payments are due.
- Your right to cancel
- Conditions involving early repayments.
However, there are some types of credit agreement that is not covered by the Consumer Credit Act. These include gas, electricity, or water meter agreements, mortgages, credit union borrowing and money borrowed from employers, etc.
Canceling a Credit Agreement
If after purchasing items you want to cancel the terms of understanding, you’ll have to return the goods or look for some other way of paying for them.
If you obtained credit for services, you will likely get a refund of your money when you cancel the credit agreement, if you’ve already made part of the payment say in form of a deposit.
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