A Guide: Consumer Credit

  1. Introduction
  2. Advertising
  3. Creditworthiness check
  4. Adequate explanations
  5. Pre-contractual information
  6. Cancellation rights
  7. APR
  8. Complaints about a credit provider

Under the Act, standard information is required in any advertisement concerning credit agreements. Every advertisement must use plain and understandable language and must be easily legible (or clearly audible).

Significantly, where the advertisement includes an interest rate or any amount relating to the cost of the credit, then a representative example of the credit on offer must also be included in the advertisement. Essentially what this means is that credit companies must now provide an example of what’s on offer. This example will include the amount of credit, the borrowing rate, any charges, the representative APR (Annual Percentage Rate) and, if your credit is related to the supply of specific goods or services, the cash price and the amount of any advance payment.

The APR means the total cost of credit provided to you. The total cost of the credit is made up of many different things, such as, charges for the loan but also additional costs. The APR is useful to you because under the Act all credit providers must calculate their APR in the same way. This means that you can compare each credit provider’s APR to see which is cheaper for you; the lower the APR the cheaper the loan and total cost of credit will be for you. The APR will also include all charges so there should be no hidden additional charges.

In the example below, the interest rate is 8% and the APR is 8.3%, however, if the interest rate was to be used for comparison purposes when reviewing providers, this could be misleading as the interest rate does not include any additional charges in the same way that the APR does and may therefore differ. The interest rate is also referred to as the base rate.

For instance, a representative example for a personal loan might look like this:

“Representative example: Borrow £7,500 over 3 years at a Representative APR of 8.3% you will pay £235.02 a month giving a total repayment of £8,460.72 and an interest rate of 8% p.a.”

The Act makes provision for specific rules as to the presentation of standard information. The information must be clear, concise and presented together – for example, in a box.