Rights of Borrowers

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Borrower’s checklist

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 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

Before a credit contract regulated by the Consumer Credit Code is offered or entered into, the borrower must be given a statement as provided by the Code. This information must be contained in the contract, or it can be given in a separate document. The borrower must also be given a document that sets out 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 Consumer Credit 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;

Mandatory comparison rates

Legislation amending the Consumer Credit Code introduced a “mandatory comparison rates” for Code-regulated credit contracts (except continuing credit such as overdrafts, credit cards and consumer leases), a tool to help consumers identify the true cost of a loan. It applies to personal, term loans and most mortgage products. It is a rate which includes both the interest rate and fees and charges that are relevant to the loan, revealed in a single percentage figure. For instance, a bank's interest rate as advertised may be 6%, but its “comparison rate” 7.2%.

The interest rate is calculated by factoring in many of the fees that are typically associated with the loan. Advertisements that include the annual percentage rate for the loan are required to include a comparison rate.