Cash Loans

The information in this section may only apply to loan contracts or agreements entered into before 1 April 2005.  If you entered into a contract or agreement to borrow money on or after 1 April 2005 see our Credit guide.

Getting a cash loan

Shop around for a loan from different banks or money lenders. Ask how much a loan from them will cost. Money lenders often have higher interest rates than banks.

Compare:

• the monthly repayments over the same period of time, eg, three years
• the total amount you will pay
• the cash price of the goods
• the finance rate.

Borrowing money will cost you:

the amount you borrowed plus:

• extra costs like documentation fees, administration costs or booking fees plus
• interest on the amount you borrowed and extra costs.

The longer you take to pay off the loan, the more interest you pay.

Finance rates

The finance rate is the price of credit. It is the figure that lets you compare the cost of different types of credit. This is because it is a percentage figure which includes all of the charges and costs, including interest.

The finance rate gives you a better indication of the cost of credit than the interest rate. Usually the lower the finance rate the better the deal.

The price of credit varies from place to place. Look around before you decide on a deal. Assess the cost of using credit at different places. A difference of one percent in the finance rate can make a big difference to the total you are paying back.

The loan agreement

You and the lender must sign a loan agreement (contract) when you borrow money. The loan document is often called a chattel mortgage or an "Instrument By Way of Security". The agreement must say:

• how much you have borrowed
• what extra charges are being made
• the finance rate
• the total amount you have to pay
• what you have listed as security
• the amount of repayments
• who, where and when you pay
• what your responsibilities are.

Secured and unsecured loans

When you get a loan it will be either secured or unsecured.

Unsecured loans do not require you to provide any security for the loan such as a car or household goods. Personal loans issued by banks are normally not secured.

Secured loans are either home loans (mortgages) or "chattel mortgages". In a secured loan you provide security against the amount borrowed. A home loan lists the house you are buying as the security for the amount you borrow.

'Chattels' are the things you own apart from land or buildings. Chattels often listed for a loan include cars, stereos, TV, videos.

'Secured' means the loan company can sell the chattels you have listed if you don't repay the loan.

WARNING: DON'T list as security things such as your house that are worth more than the loan.

Changing your mind

The lender must give you a copy of the contract within 15 working days after the day the contract was signed. When you receive your copy you then have three working days to change your mind and tell the lender in writing that you don't want the loan. You must give back the loan money and pay any costs.

Missing a repayment

If you can't make a repayment in time, ring the lender right away and ask for extra time to pay. You can also ask the lender for a longer repayment period. The lender may agree to rearrange your repayments - this will make your monthly repayments smaller but you will end up paying more interest. These changes must be written into the loan contract.

If you are unable to pay, the goods that you listed as security can be taken by the finance company. Our guide to repossession will give you information on the rules that must be followed by the finance company if your goods are repossessed.