What are my rights as a borrower?

When you borrow money, it's vital to know your rights and duties. This knowledge keeps you safe and helps you make wise choices. 

Key bodies like the Financial Conduct Authority (FCA) set the rules for regulated mortgage products. This guide sheds light on your role as a borrower so that you can navigate the loan process with confidence.

Understanding the basics

Understanding the basics is key when you're planning to borrow money. The type of loan you choose can affect your rights and loan responsibilities. Below are some the common types.

Types of loans

  • Personal loans: Unsecured loans allow you to borrow without putting up any collateral.
  • Secured loans: Secured loans, also known as homeowner loans or second charge mortgages, secured against houses. This means your home is at risk of repossession if don’t keep up with the repayments.
  • Mortgages: A loan specifically used for buying a home. Make sure you understand your rights and responsibilities before signing.
  • Car finance: Loans used for buying a vehicle often secured against the vehicle itself.
  • Overdrafts: A short-term way to borrow money up to a certain limit from your bank account.

Common terminology

Understanding the language of loans is crucial for making informed decisions. Below are some of the key terms you should be aware of:

  • APRC: Stands for Annual Percentage Rate of Charge. It shows the total cost of a loan, including fees and interest, expressed as an annual percentage it's a vital figure in debt management.
  • Credit score: This number affects your ability to borrow. A higher score can help you get better rates and terms.
  • Collateral: Assets you put up to secure a loan. In the case of homeowner loans (also known as “second charge mortgages”) your house serves as collateral.
  • Default: Failing to meet your loan obligations, such as missing payments, can result in default. This can harm your credit score, and can lead to additional fees, and may lead to in legal action by the lender.

Your rights as a borrower

Understanding your rights safeguards you from unfair practices and helps you know what to expect. Let's explore some of the essential borrower’s rights.

Right to information

You have the right to clear information. Lenders must be transparent about interest rates, fees, and other charges. This aligns with the Financial Conduct Authority’s borrowing guidelines. 

Knowing these details assists in effective debt management. Lenders can't change the terms arbitrarily; they must follow the agreed-upon terms and notify you of any changes.

Right to withdraw

Changed your mind? You usually have a cooling-off period. For most regulated credit agreements, you have a 14-day cooling-off period from signing, during which you can cancel without penalty. 

However, secured loans and mortgages have different rules—always check the terms of your agreement and make sure you understand them fully.

Right to early repayment

You can often pay off your loan early if you wish. This option lets you save on interest. However, some lenders can charge fees for early repayment.  Always check the terms of your loan agreement for early settlement.

Right to a fair collection process

If you struggle with repayments, it's important to know the rules around debt collection. Lenders must follow fair, regulated processes. Lenders authorised by the FCA must follow its guidelines, which prohibit harassment, threats, and unfair practices, abusive or deceptive practices.

Right to complain

Not happy with your lender? You have the right to complain. Lenders have policies and procedures in place for handling complaints and dispute resolution.

If your lender does not resolve your complaint to your satisfaction, you can escalate it to the Financial Ombudsman Service (FOS). They can provide free dispute resolution.

Your responsibilities as a borrower

While you have rights, you also have duties to fulfil. Understanding your responsibilities helps you maintain a healthy financial life. Responsible borrowing also helps you avoid debt traps, protects your credit score, and secures financial stability.

Repaying on time

One of the main loan responsibilities is to make timely repayment. This avoids incurring fees and charges and keeps your credit score healthy. If you can’t pay on time, contact your lender immediately. The lender may be able to offer options such as payment holidays or a debt management plan.

Updating personal information

Your role as a borrower includes updating your lender about any changes such as a change of address or job. Timely updates can affect the terms of your loan.

Reading and understanding the agreement

Don't just skim through it -read your loan agreement carefully. Understand the terms and conditions to avoid any surprises later on. This is crucial for effective debt management.

Handling financial difficulties

Life events happens, and sometimes you might struggle to meet repayments. If so, contact your lender. They can discuss options like payment holidays or debt management plans. 

Protecting yourself from scams

Scams are a real risk when borrowing money. Being aware of red flags can keep you safe.

Recognising red flags

Be cautious of lenders offering deals that seem too good to be true. Other warning signs include pressure to act quickly and unclear terms. Always research the lender to ensure they are regulated and authorised by the Financial Conduct Authority.

Reporting fraudulent activities

If you suspect a scam, it's essential to report it. Contact authorities like the Financial Conduct Authority (FCA) or the local police. You can also get help from Action Fraud, the UK’s fraud reporting centre. 

Summary

Being a savvy borrower means knowing your rights and fulfilling your duties. Understanding these can save you both time and money. When in doubt, always seek advice. Consulting experts or trusted sources can guide you in making the best financial decisions.

At Central Trust, we follow FCA regulations to ensure fair borrowing experiences. If you need guidance on secured loans, contact us at 0800 980 6273, or complete our enquiry form for a call-back.

 

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON YOUR HOME, THE LENDER MAY REPOSSESS IT.