This information applies to England, Wales, Scotland and Northern Ireland
Credit is borrowing money, usually to buy goods. Interest usually has to be paid on a loan. There may also be administration costs to pay, and interest may be charged on these too. A creditor is an individual or a company making a loan and may also be known as the lender.
This is the most common type of credit agreement. Under credit sale, you buy the goods at the cash price. You usually have to pay interest but some suppliers offer interest-free credit. Repayment is made in instalments. You are the legal owner of the goods as soon as the contract is made and the goods cannot be returned if you change your mind. The supplier cannot repossess the goods if you fall behind in repayments but can take court action to recover the money owed if you are in arrears. Credit sale agreements are now more common than hire purchase agreements and it is important not to confuse the two.
Under a hire purchase (HP) agreement, you are technically hiring goods until you pay the final instalment. You will not own the goods until then. This means that you can end the agreement and return the goods at any time. However, you will owe any overdue instalments and, if less than half of the total price has been paid, you may also have to pay the difference.
The company which has made the loan (the lender) may be able to repossess the goods if, for example, you fall behind with payments. The lender does not have to sell the repossessed goods to reduce your debt. However, you could try asking the lender if you can sell the goods yourself. This may mean you are able to get more money for them.
This type of agreement is similar to an HP agreement and usually includes the condition that the goods do not belong to you until you have paid the final instalment. The lender may be able to repossess the goods if you fall behind with payments.
These are most commonly offered by department stores, car dealers and electricity and gas companies. The shop or firm arranges a loan from a finance company for the purchase of a specific item, for example, a washing machine or car, or paying for goods and services such as double glazing.
Credit cards are supplied by banks, finance companies or shops. They can be used to buy goods or obtain money from a bank. You will get a monthly statement saying how much you owe (including interest) and will be told the minimum amount you must pay that month. You may also have to pay an annual fee.
A trader can charge you more for buying goods with a credit card than if you pay by cash or cheque. A trader who does this must display a notice in the shop saying this, and the price differences.
Some credit card companies issue cheque books. If you use a credit card cheque to buy goods, money spent is debited from your credit card account but there is usually no interest-free period and there is often a handling fee.
You can find out more about credit card borrowing on the website of APACS, the UK payments association, at: 
www.choosingandusing.com.
The difference between a charge card and a credit card is that the amount borrowed on a charge card must be repaid in full at the end of a given period, usually a month. Interest is not charged on the amount but you may have to pay an annual fee for the card.
A bank or building society can grant you a loan or agree that your account can be overdrawn. It can make a personal loan to you if you are not a customer. The bank may ask for security for a loan, for example, house deeds or an insurance policy. Any security offered may be at risk if you default on a loan.
In England and Wales, for more information about banks and building societies, see Banks and building societies in Consumer fact sheets.
A mortgage is given by a building society or bank to buy property. An extra mortgage on the property, called a second mortgage, can be given, for example, for home improvements. The lender will charge a higher rate of interest on the second mortgage.
In an Islamic mortgage, none of the monthly payments includes interest. Instead, the lender makes a charge for lending you the capital to buy your property which can be recovered in one of a number of different ways, for example, by charging you rent.
Credit brokers arrange loans from, for example, insurance or finance companies and make a charge for this. If the broker has not arranged a loan within six months, the maximum they can charge you is £5. However, if the agreement would have been a mortgage and the broker is authorized by the FSA, there is no limit on what they can charge you for their services. To find out if a broker is authorized by the FSA, go to the FSA's website at www.moneymadeclear.fsa.gov.uk, and look on the FSA Register.
Mail order shopping is usually arranged through a catalogue and is normally interest free, the customer paying only the price of the purchase in instalments. However, goods bought in this way may be more expensive.
The doorstep sale or promotion of goods or services, such as double glazing or home improvements, on credit is illegal unless the company has a licence to sell credit outside trade premises. Any agreement that is improperly made may not be enforceable.
It is a criminal offence to try to make a cash loan outside trade premises unless the visit is made to your home in response to a written and signed request. Any agreement that is improperly made may not be enforceable.
For more information about buying goods in a doorstep sale, see Buying goods – your rights.
If you have problems with a credit agreement you have entered into outside trade premises, you should consult an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
Many shops have their own types of credit accounts. These include monthly accounts (where interest will be charged if the amount is not paid off in full at the end of the month), and budget accounts (where you pay a regular amount each month to cover the cost of goods bought throughout the year).
These can be exchanged for goods, usually clothing and soft furnishings. You repay the amount to a company agent who normally calls at your home. Interest rates are often high for this type of credit.
Pawnbrokers lend money against the value of property left with them. They must give a receipt known as a ticket. Pawnbrokers agree to keep the property for at least six months but you can get it back at any time during that period by paying off the loan plus interest. The period can be extended by paying the interest only and re-pledging the property.
A credit union is a self-help co-operative whose members pool their savings to provide each other with credit at a low interest rate. If a member fails to repay a loan, the credit union can seek repayment through the courts.
Money lenders usually lend small amounts of money at high rates of interest.
Money lenders must be licensed. If they are not licensed, they are operating illegally. Illegal money lenders (known as loan sharks) often work from home, charge very high interest rates and don't provide you with much paperwork to confirm the arrangements they have made with you. Sometimes, loan sharks will take other illegal actions to collect the money they have lent you, such as threatening violence or taking away your credit cards or valuables.
You can find out whether a money lender is licensed by checking the Financial Service Authority's Register at www.moneymadeclear.fsa.gov.uk. If you borrow money from someone who doesn't have a licence, you haven't broken the law – they have.
There is a website which tell you more about loan sharks. Go to: www.direct.gov.uk/stoploansharks.
In England, Wales and Scotland, if you think a money lender is operating without a licence, you can speak in confidence to the loan shark hotline. People running the hotline can give you advice about your situation and the information you provide helps them to take action to stop illegal money lending. The hotline number is 0300 555 2222. You can also report loan sharks by email on: stoploansharks@birmingham.gov.uk. Or you can send a text or SMS – text loan shark and your message to 60003.
In Northern Ireland, call the Trading Standards consumerline on: 0845 600 6262.
There may be other sources of credit than using a money lender. If you are in debt, get advice before taking out another loan, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by e-mail, click nearest CAB.
It is always sensible to shop around before you decide to borrow. Make sure that you are getting the most suitable type of credit for your purposes and the most favourable terms. Compare the cost of different types of credit by looking at both the annual percentage rate of interest (the APR) and the length of the agreement. You can find out more about shopping around for the best credit deals at www.moneymadeclear.fsa.gov.uk.
Most types of credit and hire agreements are regulated by the Consumer Credit Act 1974 which gives a borrower some important rights (see below). An agreement covered by the Act is called a regulated agreement. An agreement will be regulated if:
If you signed a credit agreement before 6 April 2008, it could only be a regulated agreement if it was for credit under a certain amount.
If you enter into a credit agreement which is regulated under the Consumer Credit Act, you must be given a written copy of the agreement when you take out the loan. This must set out:
Agreements which are exempt from the Consumer Credit Act include:
Lenders use a number of methods to decide whether or not to give credit. If you are told you cannot have credit you can apply again, either to the same company or another one. You have no right to be granted credit or to be given a reason why credit has not been granted, although some creditors may give this information.
Lenders are not allowed to discriminate against you when deciding whether to give you credit. This means they aren't allowed to refuse to give you credit just because of your race, sex, disability, religion, sexuality or where you live.
For example, it would probably be race discrimination if a lender refused to loan mortgages on any properties in an area where mostly Asian people live.
It would probably be sex discrimination if a firm refuses to loan money to a married woman unless she applies jointly with her husband.
However, a credit company is allowed to refuse credit to someone just because of their age.
Also, a credit company would probably be allowed to refuse credit to someone with learning disabilities, if they believed the person was unable to understand the nature of the contract they were entering into. This would not be seen as disability discrimination.
Points are awarded for such things as occupation, salary, marital status and area of residence. Credit is given if you score enough points. If you apply for credit, you must be told if this method has been used.
If your application has been refused, you can ask for the main reason for refusal and for the decision to be reviewed by the creditor. You should give the creditor any additional information that you think should be taken into account.
Some creditors refuse to give credit to anyone who lives in a certain area or address, for example, a block of flats, a housing estate or a particular street. This is known as 'red-lining', and it is against the rules. If you have been refused credit and think it is because you live in a red-lined area, you should report the company to the Financial Ombudsman.
For more information about the Financial Ombudsman, see How to use an ombudsman in England, How to use an ombudsman in Wales, How to use an ombudsman in Scotland, or How to use an ombudsman in Northern Ireland.
A credit reference agency builds up information on an applicant’s financial position from the electoral roll, county court and High Court judgments (court decrees and Debt Arrangement Schemes in Scotland), bankruptcy details, and payment record in previous agreements. The payment record may include details of other people living at the same address, if they have a financial connection with you. Their record may affect whether or not you are given credit.
A credit reference agency should not hold information about your race, religion, sexuality, political beliefs, employment details, medical history, Council Tax payments or criminal records.
If you have had your application for credit refused because of information on a credit reference agency’s records, you can ask the creditor which credit reference agency it used. You can then get a copy of the record from the agency. You will have to pay a fee for this. You can ask for the record to be corrected if it is incorrect or misleading, for example, your record should not show details of people with whom you have no financial connection. You may also be able to ask to be assessed as a separate individual, even if you have a financial connection with someone else. There is, however, still no guarantee that credit will be given.
Companies called credit repair companies claim to be able to improve your credit rating. They often say they can do this by trying to alter or remove entries in your credit record.
You should be careful about using any company that charges for doing this as entries in a credit record can only be altered or removed if they are incorrect or have been cleared. If the entries are incorrect or have been cleared, you can ask for your record to be corrected yourself.
Credit repair companies must be licensed by the Office of Fair Trading (OFT) and must not make misleading claims about their services. You can use the OFT's Consumer Credit Register to check if a company is licensed. Go to the OFT's website at: www.oft.gov.uk.
The contact details of the main credit reference agencies are:-
Consumer Help Service
PO Box 8000
Nottingham NG80 7WF
Tel: 0870 241 6212
Website: www.experian.co.uk
Credit File Advice Centre
PO Box 1140
Bradford BD1 5US
Tel: 0870 010 0583
Website: www.equifax.co.uk
Consumer Services team
PO Box 491
Leeds LS3 1WZ
Tel: 0870 060 1414
Website: www.callcredit.co.uk
In England and Wales, for more information about credit reference agencies, see Credit fact sheet in Credit and debt fact sheets. See also, How county court judgments affect your credit rating.
In England, Wales and Northern Ireland, you can also find useful information about credit lending in a leaflet called Credit Explained, on the Information Commissioner's website at: www.informationcommissioner.gov.uk.
A lender can ask for a reference from your bank but the bank cannot provide this without your authorisation. The bank may charge you for providing the reference. You are entitled to a copy of the reference given by your bank. If you think you have been refused credit because the information is incorrect you should contact the bank.
If you are refused credit and want to dispute the decision you should consult an experienced adviser, for example, a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
Regulated credit agreements (see under heading Regulated credit agreements) may allow you to cancel the agreement if you want to change your mind. You have a ‘cooling off period’ in which you can change your mind. You can cancel the agreement if:-
If you are entitled to cancel the agreement, you must be sent a cancellation notice within seven days of signing the agreement explaining that you have the right to cancel the agreement. A cancellation form will be enclosed with the notice and you can use this (or write a letter) to cancel the agreement. If you do want to cancel, the cancellation must be sent to the lender within five days of receiving the notice, preferably by recorded delivery. If the goods are bought from a mail order catalogue agent, the agreement may say that it can be cancelled within 14 days of the agreement being signed and no cancellation notice will be sent. If you cancel an agreement during the cooling off period, you must:-
The supplier:-
If you have made a pre-payment for goods or services which you are buying on credit (as a deposit or part-payment), you should get all of your money back when you cancel unless you arranged your own credit.
If you have bought goods under a hire purchase or a conditional sale agreement (see under heading Types of credit) and have already made some payments, you can end the agreement by returning the goods. However, you may still have to pay any arrears and an amount of money which, when added to the amount of money paid already, comes to half the total price of the goods, if the agreement is regulated under the Consumer Credit Act (see under heading Regulated credit agreements).
In England and Wales, for more information about cancelling a credit agreement, see Credit fact sheet in Credit and debt fact sheets.
If you have bought goods or services costing more than £35, from someone who called at your home or work, you may have a seven day cooling off period. This is the case even if you did not pay for them on credit. (If you are outside the cooling off period, the right to cancel will depend on the agreement with the trader).
You may also have a seven day cooling off period when you buy goods or services through what is known as a distance sale. A distance sale is a sale by telephone, mail order or the internet. Again you do not have to pay by credit to have this seven day cooling off period.
In England and Wales, for more information about your rights when you buy goods at home, see Home shopping and Buying over the internet in Consumer fact sheets.
The following credit agreements cannot be cancelled:-
If you fall into arrears, how this is dealt with will depend on the type of agreement.
If the goods were bought on hire purchase or conditional sale (see under heading Types of credit), the credit company can repossess the goods as they remain its property until all the payments have been made. In England and Wales if you have paid over one third of the purchase price, the company will have to get a court order before it can take the goods back. In Scotland, a court order may be required at any time, though the law is unclear.
If you bought goods with other types of credit, they belong to you, and the credit company cannot repossess them. If the company agrees, you can return the goods voluntarily. However, if you fall into debt, you may be taken to court to force you to pay the money you owe. Extra interest may also have to be paid on arrears.
If you have problems with repaying a loan, you should take action straight away.
In England, Wales and Northern Ireland, for more information about what to do if you have problems with repaying a loan, see Help with debt. In Scotland, see Help with debt.
You can also consult an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.
A lender may try to vary the agreement. The change must not be unreasonable. It can only be done if there is a term in the agreement allowing for variation, for example, because of a change in the interest rate, or if both sides to the agreement do not object.
If the lender wants to vary the agreement they must give you, the borrower, seven days’ notice before doing so. However, if the right to vary is part of the original agreement, the lender may simply announce the changes in the national press.
You can repay the total outstanding amount of a loan by giving written notice that you want to end the agreement. If you have a regulated agreement (see under heading Regulated credit agreements) you will normally be entitled to a rebate of interest and other charges. The formula for calculating the amount of rebate is complicated and if you are considering doing this, you should consult an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
If you take out a loan, or enter into any other type of credit agreement, you can make a complaint if you think any aspect of the agreement is unfair. For example, you might think your credit agreement is unfair because:
There are other reasons you might think your credit agreement is unfair.
You can make a complaint to the Financial Ombudsman Service. If the Ombudsman agrees that your credit agreement is unfair, they can order the creditor to pay you compensation and to put the matter right. The Ombudsman's decision is legally binding and can be enforced by a court.
You can also complain to a court, instead of the Financial Ombudsman, or if you've complained to the Ombudsman and aren't happy with the decision.
A court can rule that there is an unfair relationship between you and the creditor. They can change the terms and conditions of your agreement, or they can rule that the creditor can't force you to stick to the agreement.
You can make a complaint about any kind of credit agreement, not just a regulated one – see under heading Regulated credit agreements.
For more information about the Financial Ombudsman Service, in England see How to use an ombudsman in England, in Wales see How to use an ombudsman in Wales, in Scotland see How to use an ombudsman in Scotland and in Northern Ireland, see How to use an ombudsman in Northern Ireland.
My mother is elderly, speaks very little English and can't read or write English. Recently, someone called at her home and persuaded her to sign a credit agreement for double-glazing. But my mother is a council tenant and the council is responsible for all the repairs to her home so she doesn't need double-glazing. Is there anything she can do?
There's a good chance that in your mother's case, the credit agreement will be seen as unfair. Your mother should complain to the Financial Ombudsman who will be able to put the matter right. She can get help to do this from an experienced adviser, for example, at a CAB.
The rules about unfair credit relationships are very complicated. If you want to make a complaint, you should consult an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
Some credit agreements made before 2007 may be unenforceable because the requirements of the Consumer Credit Act 1974 were not fully kept to.
A number of commercial firms charge a fee to help you claim that a credit agreement that you have entered into is unenforceable. The Office of Fair Trading (OFT) has advised that anyone thinking of using the services of one of these firms should first seek independent advice, for example, from a Citizens Advice Bureau.
There are also some companies which claim that, because some credit agreements may be unenforceable, they can take over your debt and get it written off.
These claims are misleading because it's illegal to transfer a debt without the lender's permission. You will still be legally responsible for the money owed, could be chased for the debt by a debt collector and your credit record would be damaged if the debt wasn't repaid.
If you're having trouble paying back your loan, you should contact your lender, or get free, independent advice from a debt advice agency such as Citizens Advice.
To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
You have the same rights when buying goods or services on credit as you have when paying cash. Goods must match their description, be fit for their purpose and of satisfactory quality. Services must be performed with reasonable care and skill, within a reasonable time and at reasonable cost.
For more information about your rights when you buy goods, see Buying goods – your rights.
For more information about your rights when you buy services, see Buying services – your rights.
If you have a complaint about goods or services you should first go to the supplier. However, if the supplier refuses to help, has gone out of business, or has disappeared, the credit company may be legally responsible, depending on the credit agreement.
If the goods were bought under a hire purchase, conditional sale or credit sale agreement, the company that gave the credit (either a shop or a finance company) is responsible for any faults.
If the goods or services were bought by credit card, credit card cheque, trading check or with credit arranged by the supplier and the value was below £100, the supplier is responsible. If the goods or services are valued between £100 and £30,000 both creditor and supplier are responsible (except in the case of a credit card cheque where only the supplier is responsible) if:-
If the purchase was made using someone else’s credit card you cannot claim against the credit card company, even if the card holder said you could use the card.
If you are an additional card holder, but are not the person who signed the agreement to have the credit card, you may also not be able to claim against the credit card company. If you want to make a claim, you should make a joint claim with the person who signed the agreement for the credit card.
The credit company should be kept informed if you are having difficulties with the supplier over faulty goods or services.
If you have arranged your own credit, for example, through a bank loan, you must take up any complaint with the supplier. You must not stop making payments as the creditor has no responsibility for faulty goods or services.
If you are having problems over faulty goods or services bought on credit you should consult an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
If your credit card is lost or stolen, you should inform the credit card company immediately by telephone and confirm the loss in writing within seven days. You will only be liable for a maximum £50 for any criminal use of the card before you report its loss. You will not have to pay for any misuse of the card after you have reported its loss. If the card is lost or stolen before you receive it, you will not be responsible for any misuse of the card.
If you have left goods with a pawnbroker and lose the ticket (receipt) and the amount you borrowed was £75 or less, the pawnbroker may give you a standard form to fill in to say that you have lost the ticket but that the goods are yours. If the credit was over £75, or if it is less but the pawnbroker will not accept a standard form, you will have to go to a magistrate or commissioner for oaths to swear that the goods are your property. There is a fee for this. The goods must then either be redeemed or a new six-month agreement made.
If you have left goods with a pawnbroker and do not redeem them, they will become the pawnbroker’s property if the amount borrowed on them is £75 or less and the period the goods were left for was over six months. In any other case, at the end of the agreed period, the pawnbroker can sell the goods. If the loan was for more than £100 (excluding interest charges) the pawnbroker must give you at least 14 days notice that they intend to sell the goods, giving the asking price. You can redeem the goods within that period, or before they are sold.
If you are taking out credit you may be asked to provide a guarantor. A guarantor is someone who will be responsible for the debt if you do not keep to the agreement, by, for example, not making payments. Guarantors are commonly asked for when the customer is under 21 or is not a householder. However, a credit company can insist on a guarantor for any agreement, as long as they don't discriminate against you. For example, a credit company can't insist on a woman having a guarantor when they wouldn't expect a man in a similar financial position to have one.
If you have agreed to become a guarantor you cannot withdraw from the agreement. You will be legally responsible for the debt and may have to pay any outstanding money owed.
If you are a guarantor and are being pursued for money which is owed, you should consult an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
If the person who has taken out credit dies before completing all the payments, any outstanding debt becomes a claim on their estate. A relative of the dead person should not offer to take responsibility for the debt before the estate has been settled.
This situation is very complex and help should be sought from an experienced adviser, for example, a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.
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