Loan documents set out rules you and your lender must follow until money is repaid in full.

What is a credit contract

A consumer credit contract is a formal written agreement to borrow money, or pay something off over time, for personal use. You pay interest and fees for the use of the bank or finance company's money. One or more of your assets might secure the loan.

Examples include:

  • vehicle finance to buy a car, van or boat
  • cash loan, also called a personal loan
  • mortgage
  • credit card or store card
  • agreed overdraft
  • credit sale (used to be called hire purchase) repaid over more than two months.

Rules in your contract must be in line with the law (see the model disclosure statement below for what information must be included). If not, you can apply to your lender to have your contract changed or cancelled. A free financial mentor or community lawyer can do this for you.

Before you agree to a contract

These are not consumer credit contracts:

  • buy now pay later, eg AfterPay or PartPay
  • layby
  • unauthorised overdraft
  • short-term credit sale (repaid in under two months)
  • any credit contract for business use
  • loan or credit from a person or business that doesn't usually provide finance.

Different rules and rights apply.

Loans and lenders

Check if your contract has all required information

The model disclosure statement shows the information that should be your credit contract.

Model disclosure statement [DOCX, 33 KB]


What common contract terms mean

Borrowing money and buying on credit involves a lot of paperwork. Before you sign, the lender must:

  • help you understand the documents
  • give you time to get independent advice.

If not, they may be breaking lender responsibility rules — and you might agree to something unfair and/or expensive for you.

These definitions can help you, or anyone supporting you, understand the documents and check your lender's explanations.

Definitions

Credit contract means a loan agreement, mortgage document, or other agreement to repay a debt over time.

Credit fee means extra costs set out in your credit contract, eg establishment fee, monthly admin fee.

Examples of common fees

Creditor is the person or business you owe money. With credit contracts, this is usually your lender, eg bank or finance company. If a debt collector buys your unpaid debt from a lender, they become your new creditor.

Disclosure means information sharing, usually between the lender and you. By law, lenders must make initial disclosure of key information before you sign anything. When the loan is finalised, the lender must make continuous disclosure, which means regular updates on your payment progress and loan account. The minimum is every six months, or more regularly for credit cards and other revolving arrangements.

Disclosure statement is the document you sign when starting a loan or other credit contract. By law it must set out key information, including money involved, what you and your lender must do, loan security, and your right to cancel.

Your rights: Information you must be given

Default means falling behind on payments and failing to get back on track, or breaking another rule of a credit contract. Someone who misses payments is sometimes called a defaulter.

Default fees are charged if you fall behind on payments, including fees for repossession notices and repossession warrants.

Default interest is penalty interest charged on overdue payments. It's charged on top of your usual interest, and at a higher rate.

Full prepayment means paying in full before the final due date. You will likely pay an admin fee — and extra costs if repaying early means the lender loses money through lost interest. This can be a large amount. Lenders can legally charge an early repayment fee (or break fee), but it must be a reasonable estimate of their loss.

Hardship, or unforeseen hardship, is a sudden life event making it difficult to afford regular repayments. Examples include job loss, serious illness or injury, relationship break-up. If this happens, you can make a hardship application to change or postpone repayments. You cannot ask for interest rate changes.

Hardship application means asking your lender for help if a sudden life event affects your finances — see examples above. You can ask for a repayment holiday and/or reduced payments over a longer time period. The lender will likely ask for proof. Time limits apply so act promptly.

Interest is what the lender charges for the use of their money. No interest rate limits currently apply, but the law sets out how interest is calculated.

Payment protection / payment protection insurance / credit insurance all mean you pay extra to cover repayments if you die, become disabled, lose your job, or other life events. Conditions apply, so make sure you understand what is and isn't included. You might already have insurance that could help.

Repossession is when the lender or a repossession agent enters your home, garage or other location to take items if you fail to pay what you owe. They can only take items listed as security in your credit contract.

Security means assets listed as security in your credit contract — eg home, car, TV, jewellery — that can be repossessed if you stop paying. Household necessities cannot be used as security, eg beds, cooking equipment, washing machines, fridges, passports.

Security interest means the lender's right to repossess and sell your assets if you stop paying. Money from the sale will then be used to cover your debts.

Standard form contract means the same terms and conditions apply to everyone who deals with that lender. These will be on your lender's website, and should also be given to you as part of your credit contract.

Common terms and conditions

What lenders must do

If your problem is not the contract but keeping payments up to date, tell your lender as soon as possible. They may agree to adjust payments.

Payment problems

If things go wrong with your contract

If you think rules in your contract are unfair, or the lender has broken a rule, follow these steps — you might not need to do all three:

  1. Contact the lender: Talk to the lender or broker as soon as possible. Many issues can be solved at this step.
  2. Contact the lender's dispute resolution scheme: Get independent help to solve problems if you and the lender can't agree.
  3. Report the lender to the Commerce Commission: This government agency gathers information to identify lenders who break the rules. It doesn't take on individual cases, but acts against lenders who often break the rules.

Example — Missing info

Jack buys a car on finance. One day his car won't start. A mechanic finds the immobiliser has been activated. But Jack didn't know the car had one. The mechanic explains how some lenders install disabling devices in vehicles used as loan security. Jack calls the MoneyTalks helpline to check if his lender can do this. Yes, but only if it's written in his credit contract. It's not. Because the lender left out this important information, they must update Jack's disclosure statement and refund all interest and fees Jack paid while it was incomplete.

1. Contact the lender

Before you make contact, read our information on:

  • your rights
  • how to complain.

A free financial mentor can help you prepare, or can talk on your behalf. Start by contacting the free helpline MoneyTalks.

Contact information(external link) — MoneyTalks

  • Check your credit contract — this should list all fees, and explain when you might have to pay these costs.
  • Gather proof, eg if fee amount is more than what's listed in your contract or on their website, differences between your lender's fees and most others.
  • Think about what you will say, making notes with points you want to cover.
  • Decide your ideal outcome, egreduce or cancel the fee.

During the conversation:

  • Take notes — include dates and what was said. If you need to take your complaint to the dispute resolution scheme, this will be helpful proof.
  • Stick to the facts — explain the problem and share any proof.
  • Say what you want — explain your ideal outcome.
  • Take time out — if it gets heated, or you want to think about their response, arrange a time to call or email back. Explain you need time to digest the conversation.
  • Make it official — if you reach an agreement to reduce or waive (cancel) a fee, get it in writing. It's a good idea to get your contract updated.

Your rights

Before and after you sign a credit contract for personal use, your rights are protected by the Credit Contract and Consumer Finance Act (CCCFA).

Here are some ways this law applies:

  • Rules in your contract must be fair and in line with relevant laws, including the CCCFA itself, Privacy Act, and Consumer Guarantees Act.
  • The language used must be clear and understandable.
  • You can get independent advice — or simply take time to think — before signing.
  • Lenders must act fairly and in line with what's in the contract, eg when charging fees, or if you miss a payment.
  • If any of these are broken, apply to the lender to have the contract changed or cancelled.

Rights and requirements in your contract must not be unfairly weighted in the lender's favour. If a contract is extremely unfair — well beyond usual commercial practices — it might be what's called oppressive. You can take legal action against the lender.

Oppressive contracts [PDF, 830 KB](external link)  — Commerce Commission

For details on when a contract is and isn't legally binding, see:

Contracts and sales agreements: Your rights

Information you must be given

The most important part of your loan agreement or credit contract is the disclosure statement. This document must set out key information, including:

  • interest rate, how interest is calculated, default interest rate if you fail to pay
  • all fees, eg set-up costs, monthly admin fee, repossession costs
  • total amount to repay
  • any assets used as loan security, eg your home or car
  • what happens if you don't pay
  • how to apply for hardship
  • how to cancel
  • contact details for the lender and their independent dispute resolution scheme
  • any extras you agree to buy, eg payment protection, car breakdown insurance
  • for vehicle finance, if there's an immobiliser, how it works, and what to do if it's activated and you need the vehicle in an emergency.

Model disclosure statement

If you are not given full and accurate information, the lender:

  • cannot make you pay fees or interest during the time it was incorrect
  • cannot enforce other rules in your contract
  • may face penalties, eg pay compensation.

Right to cancel

You can cancel a consumer credit contract, but you must do this shortly after signing. It's usually within 5 working days — check your contract for time limits.

If you cancel, you must:

  • cancel in writing, by letter or email
  • repay any money the lender has given you
  • pay the cash price for what you bought, eg car or TV, within 15 working days.

If the lender did not give you a copy of key information (called the disclosure statement) — or that information is wrong, incomplete or unreadable — you can cancel the contract at any time.

Cancelling means ending the agreement to borrow money or pay over time. You can't return what you bought, unless it's faulty.

Example — Paying upfront

Chris buys a $1,000 fridge on credit. The store takes Chris through key points of the credit contract, including the right to cancel. Once the fridge has been delivered, Chris thinks it looks a bit small and asks to return it. But the store says no. With credit sales, only the agreement to pay over time can be cancelled after delivery — the agreement to buy the fridge stays in place. Reluctant to pay the $1,000 pricetag in one go, Chris decides not to cancel the credit contract.

2. Contact lender's dispute resolution scheme

All banks, lenders and financial advisers must belong to a financial dispute resolution scheme. This independent body can:

  • give you information about how lenders should act
  • share tips on how to complain to your lender
  • look into certain complaints when you and your lender cannot agree on a solution.

It's free for you talk to them and make a complaint. Or a free financial mentor can do this for you. Start by contacting the MoneyTalks helpline.

Free confidential advice(external link) — MoneyTalks

There are four financial dispute resolution schemes. To find out which your lender belongs to, you can either:

  • Ask your lender.
  • Phone any one of the four schemes to find out. For contact details, see:

Financial dispute resolution schemes

You can also check the lender's entry on the Financial Service Providers Register:

Search the register(external link) — Financial Service Providers Register

3. Report the lender

The Commerce Commission enforces certain consumer laws, including the Credit Contracts and Consumer Finance Act. This is designed to make sure businesses lend responsibly, eg to check loans are affordable and disclose all interest and fees.

Commerce Commission doesn't act on behalf of individuals and can't investigate every complaint. But their investigations do help make sure businesses comply with the law. Your information helps them assess which consumer issues cause greatest harm.

Make a complaint(external link) — Commerce Commission


More help

Get support at any point from:

  • Community Law Centre: Free one-on-one legal advice for people with limited finances. The organisation has 24 centres throughout the country. You can find legal information and other resources on its website.

Our law centres(external link) — Community Law Centres

  • MoneyTalks: This helpline gives free budgeting advice to individuals, family and whānau. Financial mentors can help you understand your financial situation, organise your debt and plan for the future. They can also put you in touch with a local budgeting service and help with issues you're having with lenders. Phone 0800 345 123, or use live chat, email or text, if you prefer.

Contact information(external link) — MoneyTalks