The Credit Contracts and Consumer Finance Act gives borrowers a 'cooling off' period after entering into a consumer credit contract when they can change their mind.
When a borrower sign up to a contract, a lender must give them a disclosure statement, which sets out key information about the contract, including how to cancel the contract.
When can a borrower cancel a contract?
If the disclosure statement has been handed over in person, a borrower has three working days from then to cancel the contract.
If the disclosure statement wasn't handed over in person, there is a bit of extra time built in. So, if the disclosure statement was:
- emailed or faxed, the borrower has five working days from when the email or fax was sent to cancel
- sent by mail, the borrower has seven working days from when the statement was posted to cancel.
| If a borrower isn't given a disclosure statement when they sign up, they can cancel the contract at any time before that disclosure is made. |
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How does a borrower cancel a contract?
A borrower needs to put their intention to cancel a contract in writing. They don't need to use specific wording, as long as it is clear they want to cancel the contract.
A borrower can either:
- hand their cancellation notice to the lender in person
- post the notice to the lender
- email or fax the notice, as long as the lender has agreed to receive communications from the borrower electronically.
What happens after a contract has been cancelled?
After a contract has been cancelled, a borrower has a number of obligations. These will depend on whether the contract was for goods or services bought on credit (a credit sale) or a loan.
Goods or services bought on credit
When a consumer buys goods and services and uses credit to pay for them, they enter into two separate transactions - one is a sale agreement, the other is a contract for credit. Different rights and obligations apply to the sale agreement and to the credit contract.
If a borrower has bought goods or services on credit but hasn't taken the goods home or used the services, they can cancel the contract within the time allowed and are not obliged to purchase the goods or services. In other words, they can cancel both the sale agreement and the credit contract.
However, if the goods or services have been taken home or used, a consumer can cancel the credit contract, but not the agreement to buy the goods or services.
So, the borrower will need to pay for the goods or services if they have received a disclosure statement and they:
- have taken the goods home, or already used the services
- want to take the goods home or use the services
- have bought the goods or services at auction.
The borrower has 15 working days from giving notice to cancel to pay the cash price of the goods or services. The cash price is the lowest price for which the goods or services could have been bought had they been paid for in full.
A lender may charge the borrower interest for the time the borrower had the money and reasonable costs for setting up and cancelling the contract.
Loan
In the case of a loan, a borrower must return the money within three working days of receiving their disclosure statement. In other words, they must return the money when they cancel their contract.
A lender may charge the borrower interest for the time the borrower had the money and reasonable costs for setting up and cancelling the contract.
What the lender must do
In return, the lender must release any security interest or property taken under the contract (except when the security interest secures another debt). The lender must also refund any other charges the borrower has already paid, like a payment protection plan.
When does a borrower not have the right to cancel a contract?
A borrower can't cancel a contract that is for a period of less than two months unless the loan is used to pay back debt owed to the lender under a different contract, and the lender knows this.
A borrower also has no right to cancel on the basis that a disclosure statement hasn't been given to a guarantor. A guarantor is someone who has agreed to repay the loan if the borrower is unable to do so.
Lenders and borrowersThe CCCF Act uses a number of different terms to describe lenders and borrowers, depending on the transaction:
In these fact sheets, we use the terms lender and borrower to talk generally about credit transactions, but use the specific terms for consumer leases and buy-back transactions where it makes things clearer. |
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