In our previous article, we introduced the National Credit Act (NCA), the reasons for its enactment, and the purpose of the Act. Since the NCA is specifically applicable to credit agreements, it is important to define a “credit agreement”. Show
An agreement is a credit agreement if it provides for a deferral or delay of payment and if there is a fee or interest charged for the deferred payment. The NCA does not require that a credit agreement must be in writing and signed by both parties to the agreement, although this is implied throughout the Act. Credit facility A credit facility is an agreement in which a credit provider supplies goods or services or pays an amount determined by the consumer. The consumer’s obligation to pay the price or repay the money is deferred, in exchange for which the consumer pays the principal amount, interest, and fees incurred on the amount at a later stage. Siwe has a credit card registered with SA Bank. When she swipes the credit card at the supermarket for R500, SA Bank will pay R500 immediately to the supermarket. Siwe is obliged to pay SA Bank the initial amount of R500, interest incurred on the amount, and the fees for using the credit card in the future. Siwe will either pay the outstanding amount as a whole or in monthly instalments. Credit transaction A credit transaction can be any one of several different types of transactions:
Credit guarantee A credit guarantee is where another person agrees to pay to a creditor the amount due by a consumer on demand. The most common example is a suretyship agreement, in terms of which personal security is provided by a third party for the debt of the consumer (e.g. resulting from an overdrawn cheque account.) Incidental credit agreement In addition to the primary three forms of credit agreement is an incidental credit agreement. This occurs when goods or services are provided to a consumer over a period, and a fee or interest is charged only if payment is not made by an agreed date. For example, you buy shoes from a clothing store on account. If payment is made within six months, you will only pay the original price; but you will incur interest on the outstanding amount once six months have passed. Before a consumer enters into an agreement, it is essential to ascertain whether the agreement is classified as a credit agreement as defined in the NCA. This is so because if you are party to a credit agreement, you are afforded certain forms of protection by the NCA. These matters will be investigated in the articles to appear in the coming months. If you’re borrowing money, you’re getting credit – this could include overdrafts, credit cards and loans. The lender should typically provide you with a credit agreement, which spells out the details of the deal, including your rights. Both you and the lender have to agree to the terms of the agreement in order to seal the deal. Do credit agreements cover anything else other than overdrafts, credit cards and loans?Credit agreements also cover other types of borrowing. These include credit sale agreements, hire purchase agreements and conditional sale agreements. What are your rights?Some agreements are covered by the Consumer Credit Act, which includes your rights when entering into a credit agreement. These include:
However, there are types of credit agreements that the Consumer Credit Act does not cover. These include gas, electricity or water meter agreements, mortgages, credit union borrowing and money borrowed from employers, to name a few. Cancelling a credit agreementIf you’ve purchased items but want to cancel the credit agreement, you’ll typically need to return the goods or find some other way to pay for them. If you obtained credit for services, you’re likely to get your money refunded to you when you cancel the credit agreement, if you’ve already made part of the payment, for example, in the form of a deposit. Early repaymentIt’s possible for you to make early repayment on types of borrowing covered by the Consumer Credit Act, but you have to give the lender written notice that you’re going to do so. They’ll give you an early settlement amount, which is the amount that needed to pay the debt off early. The Consumer Credit Act also gives you a statutory rebate for any interest or charges you’ve made. It sets out ways to calculate this rebate, so that it’s not decided on by the lender. What if you can’t make a repayment?If you’re behind on payments, the lender is expected to give you an arrears notice and a Financial Conduct Authority (FCA) arrears information sheet. This is to let you know what your rights are and how you can get the support to manage the payment problem. Defaulting on repayments may show up on your credit history. This information could be used by lenders to judge your creditworthiness when you apply for another loan. You can view your credit history on your Equifax Credit Report & Score – it’s free for the first 30 days, then £7.95 monthly after that What are the different types of credit agreement?These include credit sale agreements, hire purchase agreements and conditional sale agreements.
Who provides credit agreement?A Credit Agreement is a legal contract issued by a lender which sets out the terms of extending credit to the customer for a specified amount of time, in accordance with strict requirements of the Consumer Credit Act 1974.
What is the difference between a loan agreement and a credit agreement?While a loan provides all the money requested in one go at the time it is issued, in the case of a credit, the bank provides the customer with an amount of money, which can be used as required, using the entire amount borrowed, part of it or none at all.
Why is credit agreement important?The credit agreement must state certain things that the lender and borrower agree to, such as the interest rate and any charges that may apply to the loan. A credit agreement is important since it states up-front what it will cost to borrow money and what terms and conditions apply to the loan.
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