Rights of borrowers

It is easy to borrow - it is often a lot harder to face the reality of monthly payments to repay the loan.

• what sort of security is required e.g. if you obtain a property mortgage the financial institution will require title over the property;
• the interest rate that will be charged, and how often the payments must be made (e.g. weekly, monthly);
• how the rate is charged i.e. is it a flexible or fixed interest rate;
• the actual amount, in dollar terms, that will be paid over the term of the loan (you may be surprised);
• whether there are charges that effectively add to the interest payments e.g. a loan maintenance fee;
• how long the loan runs for (the term of the loan);
• what happens if you are unable to repay the loan, or if you experience short term financial difficulties;
• whether you are able to repay the loan over a shorter period, and whether penalty rates will attach to it.
• whether the contract is covered by the Consumer Credit Code.

You should not assume that a lender will necessarily refuse to provide credit if you cannot afford to make the repayments. You should always make it your own responsibility to decide whether you can afford the repayments. It cannot be emphasised too strongly that borrowers should take every caution when entering a credit contract.

Before a credit contract regulated by the Consumer Credit Code is offered or entered into, the borrower must be given a statement as provided by the Code. This information must be contained in the contract, or it can be given in a separate document. The borrower must also be given a document that sets out the borrower's rights and obligations, and also explains what the borrower should know about their proposed credit contract.

What must be disclosed

Under the Consumer Credit Code certain matters must be disclosed in the contract:

• the amount of the credit;
• annual percentage rate and where it can be found if it is variable;
• the method of calculating the interest rate under the contract;
• the amount, frequency and total amount of repayments;
• credit fees and charges (see below);
• changes that may affect the obligations of the borrower and how the borrower will be notified e.g. a change in the credit rate;
• how often accounts will be issued;
• whether there is a mortgage or guarantee that attaches to the provision of credit;
• any commissions payable by or to the credit provider;
• details of insurance that is to be financed under the credit contract. Credit fees & charges disclosure Fees and charges must be disclosed under the Consumer Credit Code. These include:
• any fee or charge that must be paid in connection with the credit contract;
• interest charges;
• government charges for receipts or withdrawals.

• changes in interest rates have been anticipated in the contract, including when they will take place;
• increases in repayments have been anticipated in the contract, including when they will take place;
• increases in pegged interest rates under the contract. This is permissible under the Consumer Credit Code as long as that is a term in the contract. Notice must be given in some circumstances, if:
• the interest rate is varied and notice is given according to the Consumer Credit Code;
• the consumer is not in default but the credit provider wants to stop further credit (or reduce the amount available) under a continuing contract.

Read this: This fact sheet is intended to be general information about the law in Australia. It is not a substitute for legal or other professional advice. LAwscape Communications Pty Ltd, F2 Australia & New Zealand Pty Ltd or Moneymanager does not accept responsibility for loss to any person, who either acts or does not act because of this fact sheet.

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