Consumer credit contracts - general information 

What is a consumer credit contract?

A consumer credit contract is an agreement between an individual and a lender, where:

  • the lender is an individual or organisation that is in the business of providing credit (e.g. loans);
  • the borrower is getting the credit mainly for personal or domestic use; and
  • the borrower is charged interest or fees, or has offered some of their property as security for the loan.

Examples of consumer credit contracts include:

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What are some typical fees that are applied to credit contracts?

A lot of retailers advertise purchasing agreements in which you pay no interest for a period of time, but that doesn’t mean that there are no extra costs to you. Always ask for a list of everything you’ll have to pay for; this might include charges to prepare the agreement, insurance, admin fees and interest. Whoever you’re buying from should clearly tell you the all-up cost, and if they don’t you should rethink your purchase!

If you’re offered a period of 0% interest, it’s important to ask what the interest rate will be on the amount you still owe after the interest-free period, if you can’t pay back the loan in the interest free period you could end up paying a lot of interest.

In addition to the interest you pay for credit, other fees you might have to pay include:

  • application / brokerage fees - usually charged when you take out a loan
  • early repayment fees
  • late payment fees
  • default / penalty interest - if a payment is late or missed, a higher interest rate could be charged on the late or missed amount
  • administration fees (e.g. PPSR search fee, credit check fee, legal fees)
  • establishment fee

For a personal loan, the establishment fee ranges anywhere from nil to around $250. Not all lenders charge all of the above fees, and the amounts can vary widely – so it’s really worth shopping around for the cheapest credit deal. Make sure you are aware of all loan conditions before signing the contract and seek advice and clarification if there is anything you do not understand.

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What is a disclosure statement?

When you sign up for a loan or hire purchase agreement, the lender must let you know up front exactly what the cost will be and tell you about any additional charges or fees. This information is included in a document called the 'disclosure statement'. They must give you this before the contract is signed (if you entered into the contract after 5 June 2015), or within five working days of the contract being signed (if you entered into the contract before 6 June 2015). The disclosure statement must state, among other things:

  • exactly what fees you will be charged, and whether the contract includes early repayment fees
  • how much your repayments will be
  • how much interest you'll be charged, and how the interest is calculated
  • what will happen if you can't make your payments
  • how you can cancel the contract

More about disclosure statements and what to expect from your lender is on the Commerce Commission website.

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What if I don’t understand the credit contract’s terms and conditions?

Credit contracts can be complicated. If you are having trouble understanding a loan contract, you should ask for a copy of the contract, and take it to your local Citizens Advice Bureau, a lawyer or community law office for advice before you sign it.

After you have signed the contract you only have a few days (see below) to cancel it, so it is best to seek advice promptly if there is something you're not happy with or that you do not understand.

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Can I be forced to pay fees on my credit if the finance company accidentally omitted them in the first place?

If the administration fees were specified in the disclosure statement of your credit contract, it is likely you will have to pay them.

If they were not specified, the finance company can change the credit contract to include them - but only if you both agree to the changes.

Otherwise, you should not have to pay. If a finance company pursues you for fees which were not included in the disclosure statement, you can approach your local Citizens Advice Bureau or community law office or a lawyer for advice. You can also make a formal complaint (see our page on complaints about financial services).     

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Can I change the conditions of a credit contract or cancel the contract altogether?

Yes. If both the borrower and the lender agree, a credit contract can be changed.

For any variation to the credit contract, the lender is required to follow the lender responsibility principles. For example, let’s say you ask your bank to top up your mortgage so that you can carry out renovations to the house. The lender must be sure to tell you how this will affect your debt e.g. that it will increase the amount of interest you’ll have to pay and the length of time it will take to repay the mortgage.

You may cancel a consumer credit contract during the first few days after receipt of the disclosure document - this is called the "cooling off" period.

For contracts signed on or after 6 June 2015 you have a cooling off period of:

  • five working days if the disclosure document was given to you in person;
  • seven working days if it was sent to you electronically; or
  • nine working days if it was sent to you by mail.

You can also cancel the credit contract if the lender has not provided disclosure correctly e.g. you haven’t received a copy of the contract, or some information given was incorrect. However - once they correct this, you won’t be able to cancel.

Here are some important points to be aware of:

  • Even if you cancel the contract you may have to pay some administration charges related to the contract.
  • If you cancel the contract but have already taken possession of any goods you bought on credit then you will have to pay the full price for those goods within 15 working days.

If you need to cancel your contract, it's a good idea to do it in writing so that both parties have a record of the cancellation request.

More information about cancelling a consumer credit contract is on the Consumer Protection website.

If the contract contains 'oppressive' terms that the lender refuses to change, the borrower can apply to the Disputes Tribunal or District Court and request that the contract be 're-opened' and an appropriate order made. Where oppression is found, the Court can make any orders that it considers are necessary to remedy the situation. The Commerce Commission has more information about oppressive contracts

You can read the Consumer Protection guide to credit contracts for information about your rights and what normally happens in a credit contract. If you'd like advice on a credit contract, see your local CAB or Community Law Centre.

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What can be used to secure a loan? 

For credit contracts entered into before 6 June 2015, any property listed on the agreement can be used as security.

For credit contracts entered into on or after this date there are restrictions on what items can be use as security - for example lenders can’t take security over travel documents, identification documents or bank cards.

They also can't take security interest over essential household goods, including:

  • beds and bedding
  • cooking equipment
  • medical equipment
  • portable heaters
  • washing machines
  • refrigerators.

The “essential household goods” restriction doesn’t apply if you use credit to buy an essential household item. For example, if you buy a bed on credit then that bed can be used as security in your credit contract.

If you are entering into a loan with a security agreement, you should be clear about which items the lender can take so you don't end up losing items that are worth more than you owe. This is also true if you agree to be a guarantor for someone else's loan.

For contracts entered into from 6 June 2015 goods being used as security must be described in a way that allows them to be identified - for example instead of simply listing a microwave oven the lender must describe the microwave oven (e.g. make and model).

A lender is not allowed to claim all of your property that you own, or will own, as security. For contracts entered into from 6 June 2015, the lender cannot use as security any specific goods that you acquire after the start of the contract - unless both you and the lender agree to change the contract to include those specified goods. 
 
If your credit contract claims a security interest in "All present and after acquired property" then that clause cannot be enforced.   

You should always seek legal advice before entering into a secured loan.    

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What is the Personal Property Securities Register (PPSR) used for?

The Personal Property Securities Register (PPSR) is an online register of all security interests (claims against property other than land). If you have a secured loan (see the previous questions) your details will be added to the PPSR along with details about the security items
 
A buyer can search the PPSR to find out if property has a security interest registered against it. If they buy property that has a registered security interest, they risk losing it to a creditor because of unpaid debts.

All items used as loan security should be listed on the PPSR. You can search the PPSR online by company or individual name or, for some items, the identification number - for instance if you were buying a car you could search by the Vehicle Identification Number (VIN) - there is a cost involved. If you want more information on vehicles that have been used as loan security, see our section on buying and selling vehicles.

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How can I find out how much more is left to repay on my credit contract?

The lender must provide, in writing, certain key information about your credit contract during the life of the contract. This is called "continuing disclosure". Generally it must be provided at least every six months, though for a revolving credit contract it should be at least every 45 working days.

They must also provide disclosure at any time that the contract is altered, and when the borrower or guarantor asks for it.

You can request information about:

  •  repaying some of your debt early,
    • what effect it will have on your obligations
    • how much early repayment fee you’ll be charged, and how it will be calculated
  • what you would have to pay if you wanted to clear your debt completely by a certain date, and how it will be calculated
  • the full details of any changes that have been made to the contract since you signed it
  • the amount of the unpaid balance including interest charges
  • what payments you have to make, or how they are calculated
  • how often you have to make payments
  • how many payments you still have to make
  • the total number of payments you have to make during the life of the contract

You can also ask for a copy of any disclosure statement the lender has already (or should have) provided, and for a copy of your contract and the standard terms and conditions at any time

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I’m having money problems and might not be able to make my repayments. What should I do?

It’s important to tell the people with whom you have the credit contract, as soon as you think you’ll have problems making your payments.

If it’s due to circumstances beyond your control (e.g. losing your job), check your finance agreement in case it includes payment protection insurance. If you do, check the insurance policy and contact the insurer. You can also consider applying for a variation to your repayments using the ‘hardship provisions’, which you can read about on our Credit and Debt Management page.
 
Otherwise, talk to the lender as you may be able to negotiate different payment terms which are easier for you to meet.

See our Credit and Debt Management page for more information about this.