Credit Contracts


Credit Contracts: Your Rights and Obligations

 

Knowing how much using credit will cost you and how long it will take you to pay it off is only half the battle. Before making your final decision you should also be sure that you are familiar with your rights and obligations under the credit contract. The same law that requires lenders to disclose the total cost of credit also requires that credit contracts contain information about the following:


Payment Schedule

Credit contracts must disclose the amount and timing of your payments. In the case of open credit, such as a credit card or line of credit, the contract should detail how to calculate your minimum payment. Be sure you know when your payments are due to avoid default charges.

Grace Period


A grace period is a period of when you are not being charged interest and may not be required to make payment. If you are given a grace period the details must be disclosed in your credit contract.

Default Charges

When payments are late or missed, creditors can charge late payment fees or choose to increase the interest rate. These penalties must be clearly disclosed in the contract.

Prepayments


A prepayment is a payment made in addition to any regularly scheduled payments.  With the exception of mortgage loans, consumers can make extra payments or pay out their loan at any time without being charged a fee.  In the case of mortgage loans, the lender may charge the borrower for making extra payments on the loan, but must clearly disclose how to calculate the fees in the mortgage contract.

Optional Services


If you have purchased any optional services through a credit contract such as insurance, the amount and timing of the payments for the services must be disclosed in the contract. The contract must also disclose your right to cancel any ongoing optional services.


Cancelling a Credit Contract

While you have the right to cancel optional services purchased through a credit contract, you may not be able to cancel the entire contract unless the business or lender gives you permission to do so.  

When purchasing on credit ask about the businessís return policies and be sure that any cancellation rights are clearly disclosed in the credit agreement before you sign.  Unless the contract gives you the right to cancel it may be difficult or impossible to cancel: don't sign unless you are positive you want the product or service.



 

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