Cooling-Off Period

Definition

The term ‘cooling-off period’ refers to the credit law governed by the Consumer Credit Act 1974, which gives finance customers the right to cancel their contract within 14 days of entering a credit agreement, without receiving a penalty.

However, this only applies to credit agreements that have been arranged ‘at a distance’, i.e. over the phone, online, or at a location away from the business premises.

How it works 

The cooling-off period exists to give finance customers an opportunity to reconsider a loan or credit arrangement after the contract has been agreed.

For example, you may wish to cancel your agreement if you find a better deal elsewhere. Alternatively, you may just change your mind. Either way, you do not have to give a reason for cancelling your agreement.

The cooling-off period begins the day after you enter a contract. From this point, you have 14 days to change your mind and withdraw from the agreement, without receiving a penalty.

However, if you have received services during the cooling-off period, the business is entitled to charge you for the cost of the services provided.

If you’re looking to cancel your agreement, you’ll need to give notice by contacting your lender and explaining you want to cancel. Your lender will then be able to advise on the next steps.

Will I get my deposit back?

For certain types of loans, i.e. a car finance agreement, you may be required to pay a deposit to demonstrate to the lender that you are committed to the agreement.

However, this means if you change your mind and decide to cancel the agreement, the finance provider may not have to refund your deposit.

To find out if you’re eligible for a refund, you’ll need to check the terms and conditions of your agreement.

When a 14-day cooling-off period doesn’t apply

The 14-day cooling-off period applies to all credit agreements regulated by the Consumer Credit Act that are purchased ‘at a distance’.

It does not apply if the agreement has been arranged on business premises or to services such as hotel bookings, vehicle rentals, courier services, or leisure activities e.g. restaurant bookings or theatre tickets.

Cancelling after the 14-day cooling-off period

Under the Consumer Credit Act 1974, finance customers have the right to cancel their credit agreement after the 14-day cooling-off period through a process called ‘Voluntary Termination’.

However, voluntary termination is only possible if you have paid off at least 50% of the outstanding finance. If you haven’t, you must make up the difference before you can withdraw from the agreement.

To cancel your agreement after the 14-day cooling-off period, you’ll need to contact your finance provider and request a settlement figure. This is the total amount owed, including interest and any additional fees.

Where can I find my cancellation rights?

You should always check your cancellation rights before you enter a credit agreement, even if you think you won’t need them.

They should be outlined in terms and conditions of your contract, but your lender should also make them clear before you sign the agreement.