What to look for in a credit agreement

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About credit agreements

B.C. law requires there to be a written credit agreement whenever you borrow money. The credit agreement must state certain things that the lender and borrower agree to, such as the interest rate and any charges that may apply to the loan.

A credit agreement is important since it states up-front what it will cost to borrow money and what terms and conditions apply to the loan. Once signed, a credit agreement is a legally binding document. You must abide by what you agree to or be prepared for the consequences.

You should never sign a credit agreement unless you understand what you are agreeing to and are prepared to fulfil the terms and conditions of the loan. Do not be pressured into signing a credit agreement. You may not be able to cancel it later.

Note that a lender cannot ask you to pay any amount that is not stated in the credit agreement.

Reviewing a credit agreement

Be sure to read the credit agreement carefully before you agree to it. Pay special attention to the following information, which must be stated in the credit agreement:

  • The type and amount of the loan (including whether it is a high-cost payday loan, installment loan, line of credit or lease)
  • The term of the loan and the repayment schedule (when you must pay the loan back and how much at a time)
  • The interest rate and type (fixed or variable)
  • Extra fees you may have to pay
  • Optional services you may choose to purchase (including how to cancel them)
  • Penalties or consequences if you miss a payment or default on the loan

If the lender makes a verbal promise (such as a promise to lower your interest rate in the future), make sure it is stated in the credit agreement. If it not, you may not receive what you were promised.

Ask questions if you don’t understand something in the credit agreement. If you need time to review the credit agreement, ask for it in writing.

If you ever feel pressured to sign an agreement, you should walk away and consider using another lender.

Rights and responsibilities

A lender is required to give you a credit agreement before you:

  • Enter into an agreement
  • Make any payments. 

The credit agreement must state key information like:

  • The effective date of the agreement
  • The interest rate
  • Allowable charges
  • When payments are due

Specific rules for credit agreements also apply, depending on the type of credit being issued (such as fixed credit or open credit). For example, a payday loan agreement must contain certain information specific to the payday loan.

Resolve an issue

Contact Consumer Protection BC if you have questions or concerns about:

  • Your credit agreement
  • Your statements
  • Requirements a lender has imposed on you