How to read your credit contract

9 August 2010

It can feel like hide and seek trying to find out what you actually need to know in your credit contract.

The law says you must be given certain information when you sign up for a loan or when you buy goods or services on credit. The problem is that you often get a whole wad of paper filled with terms and conditions. And it’s tempting to give up on understanding it and just sign the stupid thing. So below we have outlined some of the key things you need to know about your credit contract.

How much you have to pay and when

Make sure these payments are in your budget. It can be quite expensive if you miss a payment and you could get into financial trouble if you fall behind.

How much the ‘default fees’ or ‘default interest’ are

How much will you have to pay if you miss a payment? Sometimes this can make an easy-to-pay debt spiral out of control.

What ‘security’ the company is taking for the loan

Security items can be taken away and sold if you don’t pay your loan. This could be the items that you’ve bought on credit or it could be a lot more (like your house). It’s also good to check that these are items that you do actually own (not something that belongs to your mum or your flatmate).

What fees you are being charged for

Some of these fees might not be relevant or reasonable. So check what they say they are for. You don’t have to pay for insurance in case you lose your job if you don’t actually have a job.

How long you have to cancel the contract

You can cancel the contract in the next few days, but it depends on how you received the contract: by hand (3 days), electronically (5 days after it was sent), by mail (7 days after it was sent).

Getting advice about your credit contract

If you can’t find this important information then ask the seller to point it out for you. Read through the contract before you sign and remember you still have a few days after signing to choose to cancel and find the money from somewhere else.

For advice on borrowing money and paying it back talk to a budget advisor. Call 0508 BUDGETLINE (283 438) to find your nearest budget advice service or to speak directly to a budget adviser.