It is easy to borrow - it is often a lot harder to face the reality of the monthly payments that are required to repay the loan.
It is all very well to rely on legal remedies when you have a problem, but it is far better to follow some simple rules when looking around for an appropriate credit provider. Always check:
- what sort of security is required e.g. if you obtain a property mortgage the financial institution will require title over the property;
- the interest rate that will be charged, and how often the payments must be made (e.g. weekly, monthly);
- how the rate is charged i.e. is it a flexible or fixed interest rate;
- the actual amount, in dollar terms, that will be paid over the term of the loan (you may be surprised);
- whether there are charges that effectively add to the interest payments e.g. a loan maintenance fee;
- how long the loan runs for (the term of the loan);
- what happens if you are unable to repay the loan, or if you experience short term financial difficulties;
- whether you are able to repay the loan over a shorter period, and whether penalty rates will attach to it.
- whether the contract is covered by the Consumer Credit Code (amongst other issues, the loan must be predominantly for personal, domestic or household purposes e.g. car loans, personal loans, home loans, consumer leases, credit cards).
Ability to pay
You should not assume that a lender will necessarily refuse to provide credit if you cannot afford to make the repayments. It is your own responsibility to decide whether you can afford the repayments, and you should take every precaution when entering a credit contract.
Information to be provided
The Code sets out requirements for credit providers in relation to disclosure. The borrower must also be given a document (Credit Guide) as well as a statement that sets out some of the borrower's rights and obligations, and also explains what the borrower should know about their proposed credit contract.
What must be disclosed
Under the Code certain matters must be disclosed in the contract:
- the amount of the credit;
- annual percentage rate and where it can be found if it is variable;
- the method of calculating the interest rate under the contract;
- the amount, frequency and total amount of repayments;
- credit fees and charges;
- changes that may affect the obligations of the borrower and how the borrower will be notified e.g. a change in the credit rate;
- how often accounts will be issued;
- whether there is a mortgage or guarantee that attaches to the provision of credit;
- any commissions payable by or to the credit provider;
- details of insurance that is to be financed under the credit contract.
Last Updated – June 2012