Know your rights
The Credit Contracts and Consumer Finance Act (CCCFA) protects you as a borrower and gives you certain rights to:
- change your mind for any reason during a five-day cooling-off period and cancel the contract
- repay what you owe on your contract early
- ask lenders to change their contract if you are suffering unexpected hardship.
You need to tell the lender in writing that you want to cancel the contract. Hand-deliver your letter or send it by registered mail to make sure it arrives in time.
Cancelling the credit doesn’t always cancel the purchase. If you’ve borrowed money to pay for products and have already taken them home, you’ll need to pay for them within 15 working days. You may also need to pay a small amount to cover the lender’s costs.
The CCCFA also sets out rules called the lender responsibility principles that your lender must follow when lending you money.
Lenders must also make information about their standard contracts, fees and interest rates publicly available (online) so you can compare mortgage rates more easily.
Credit fees must be reasonable and relate to the actual costs incurred by the lender.
Credit fees are any charges or fees you pay to the lender:
- as a condition of the contract
- in connection with the contract
- for their benefit.
Credit fees aren’t an interest charge or a default payment charge if you miss a payment, or government fees. Credit fees must be reasonable and include:
- establishment fees: application, commitment, documentation or booking fees relating to the lender’s costs for the credit application
- prepayment fees or break fees: when you pay off all or a part of the unpaid balance before the contract term ends to compensate the lender for their loss because of early repayment.
For more information read the Commerce Commission’s guidance on fees a lender may charge(external link).
Interest charges are what a lender charges you for the use of their money. The charges are determined by applying a rate but only to the unpaid balance. The annual rate of interest must be stated in the consumer credit contract. Interest must not be charged in advance. A lender can charge what interest rates they choose, but the CCCFA sets out ways lenders must calculate interest charges.
Default fees apply if you miss payments or break other conditions of your credit contract. They include any fees or charges that a lender incurs to enforce a contract, but not default interest. They must be reasonable, ie only cover the lender’s costs incurred because of the default, or a reasonable estimate of those losses.
Default interest is a higher interest rate that you are charged when you have missed a payment and while the non-payment continues. Default interest charges can also apply if you exceed the credit limit. They only apply to the overdue amount, not the entire unpaid balance.
Note: for contracts entered into before 6 June 2015, lenders can charge default interest on the total unpaid balance. The charges must also relate directly to the loss the lender experiences as a result of the non-payment.