Your Rights When Cancelling a New Credit Agreement

Posted by Tom Magor in Credit Reports on 18 March 2019 - Tom is a Senior Credit Analyst at checkmyfile.

For most people applying for credit the main concern is whether or not they will be actually get accepted. But occasionally a change in circumstances (or even just a little time to reflect on your purchase) means that a bigger concern might be whether you can change your mind and withdraw from a credit agreement (be it a credit card, personal loan or other credit facility) after it’s been granted, potentially preventing you from taking on additional financial responsibility that you no longer want or need.

If that happens, how do you ensure that you don’t end up stuck with an account – or worse, money you no longer want and will have to repay? As long as you act relatively quickly and follow the right steps, you should be fine.

What are your rights?

If you want to cancel a credit agreement you are legally entitled to do so within 14 days. For products purchased on finance this may require that you haven’t used the item or if you have borrowed funds, all money owed needs to be returned along with any interest accrued.

This is known as “The Right to Withdraw”, which entitles you to a Cooling-Off Period, as allowed under the Consumer Credit Act 1974. This protects consumers from potentially getting locked into unwanted finance agreements that could be easily avoided. Provided the product hasn’t been used, you should be able to end the credit agreement at no additional cost – aside from any deposit you might have paid, which is unlikely to be refunded.

There are exceptions to this rule, with credit agreements taken out in any of the following circumstances not covered by the Right to Withdrawal:

  • Purchases of perishables
  • Purchases of items that require a seal to be broken before use
  • Purchases of personalised, custom-made or engraved items
  • If the amount of the credit agreement exceeds £60,260
  • Amounts less than £50
  • Mortgages

Why are certain items or products exempt?

You may not be able to withdraw from a credit agreement if it was taken out on an item that now cannot be returned to stock and sold on for the full price, for example if you have your name engraved on a new iPad and then decide you no longer want it, Apple wouldn’t be able to sell it on as a new tablet.

This can get more complicated and could lead to problems if you opt to finance a purchase via a third-party lender. In this situation, you may well still be able to withdraw from the finance agreement itself under the Right to Withdraw, but you may still be liable for the purchase.

A common example of this is if you were to buy a car from a dealership and opt for car finance from a third party to fund most of the purchase.

While you might be able to back out of the credit agreement within the first 14 days, the vehicle order form is a legally-binding agreement with the dealership to complete the purchase. Your options then are to fund the purchase through another means or negotiate with the dealer to exit the agreement. In the latter scenario, you stand to lose any deposit paid and could incur additional fees in the process.

Visit the Financial Conduct Authority for more information about your rights when cancelling credit agreements.

Cancelling a new credit agreement

If you want to cancel a credit agreement, the first step is to contact the relevant lender to inform them of this. It’s recommended to do this as quickly as possible, so call the lender directly but also make sure you follow on from this with written correspondence. This ensures there is a paper trail that you can follow if you need to refer to specific dates and information later.

Remember to keep copies of all letters, emails and (if possible) paperwork that you send and receive and where available use recorded delivery when posting items. Make sure to include details such as dates and reference numbers as they appear on your copy of the credit agreement (this would have been sent to you when you applied).

By exercising your right to cancel a credit agreement, you are deemed to withdraw from the contract, and the contract is terminated. You cannot be penalised for cancelling the agreement.

What if the lender doesn’t cancel my agreement?

If the lender doesn’t cancel the credit agreement as requested, you can raise a formal complaint. This is where it may help to provide copies of correspondence you have had up to this point to ensure there is no misunderstanding on the lender’s end about everything that has happened. If this still doesn’t resolve the situation, your next step should be to contact the Financial Ombudsman.

As long as you have proof of the date of your correspondence informing the lender that you want to withdraw from the agreement and that none of the circumstances stated earlier that could void your right to withdraw are applicable, you should be well within your rights to end the agreement.

It’s worth remembering that a reason doesn’t need to be provided in order to cancel a credit agreement within the 14 day period – as long as there isn’t an outstanding balance on the credit facility or the item (if bought on finance) hasn’t been used, that should be all they need to know.

How cancelling a credit agreement affects your Credit Report

There shouldn’t be any negative after-effects for cancelling a credit agreement within the first 14 days and doing so shouldn’t affect your ability to take out credit again at any point in the future.

In all likelihood, with the exception of the Application Search carried out on your file when you first applied for credit, the credit account is unlikely to appear on your Credit Report. Because most lenders only update Credit Reference Agencies once a month, it is likely the agreement will be cancelled before the Agencies are even made aware of it.

Check your Credit Report to make sure the agreement has been cancelled

Cancelling your credit agreement should be a relatively simple process, and any cancelled agreement shouldn’t show on your Credit Report, but it’s always a good idea to check this for yourself.

Information on your Credit Report isn’t updated in real-time. It’s quite common for the information on your Credit Report to be anywhere up to two months old as a result of the time it takes for lenders to pass information on to Credit Reference Agencies and the time it takes the Agencies to update your file, so it can take a couple of months for any new account to appear.

Errors on your report are rare, but if a cancelled credit agreement is reported the lender concerned is legally-obliged to correct the mistake.

Even if a credit agreement was added and then reported as closed at a later date by a lender, there is a chance that – even for a short time – you could appear to have more outstanding finance than you actually do, potentially affecting your Creditworthiness.

Financial Associations

While cancelled credit agreements shouldn’t have any effect on your Credit Rating, if you made the application with another person – for example as a joint unsecured loan - you will create a Financial Association with them. This association will remain on your Credit Report even if you cancel the credit agreement during the Cooling-Off Period.

Financial associations create a link between yourself and another person that will be visible to other lenders checking your Credit Report. This means that when either apply for credit (even as an individual), both parties’ Credit Reports can be checked, potentially influencing the outcome.

Financial Associations themselves are quite normal (and nothing to be afraid of) but they mean you could see your chances of being accepted for credit reduced if the person you are financially linked to has a worse Credit Rating than yourself and vice versa.

Associations are not removed automatically, so if you find that a link has been created but no credit agreement exists, you will need to take action to ‘ disassociate’ if you do not wish it to be taken into account.

If you cancelled a joint credit agreement because you have parted ways with the other applicant then you definitely don’t want their creditworthiness to affect your own ability to take out credit in the future, so it’s usually best to have the association removed from your Credit Report as soon as possible.

You can find out more about financial associations and how they affect your Credit Rating and how to remove them by checking our handy guide .

If you haven’t already, you can try checkmyfile FREE for 30 days, then for just £14.99 a month afterwards, which you can cancel online at any time.

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