Borrowing money can be an easy way to fund your business ideas or emergency expenses, but it’s important to know the ins and outs of borrowing to ensure you get the best possible deal for yourself.
It’s important to make sure you understand your rights as a borrower when borrowing money, whether it’s through credit cards, car loans, or home mortgages. Knowing exactly what you can expect will help you avoid surprises when you borrow money.
This list of 8 borrower rights will prepare you with everything you need to know before agreeing to make a loan so that both parties are happy when it comes time to repay your debt.
- The Right to be Fully Informed
You have the right to be fully informed about any loan you are considering. If a lender tells you that you need to agree to specific terms before they will give you more information, it is illegal for them to do this.
Lenders must share enough information with borrowers so that they can make an informed decision about whether or not to sign the loan agreement and take out the loan.
There are some of the critical things lenders should tell you about, including the annual percentage rate (APR) on your loan, the term of your loan, your monthly payment amount, and fees associated with taking out the loan.
- Right to Choose the Loan that Best Suits Your Needs
Borrowers have the right to choose the loan that best suits their needs. This is not always an easy decision, but it is a right. If you are unsure of which option is best for you, be sure to consult with your lender about all of your options before finalizing any type of loan.
In some cases, borrowers may want to pay off a certain balance in full and then apply for another loan. Again, this is up to the borrower, and they should only do so if they feel comfortable doing so or if they have specific reasons as to why they want to do so.
- The Right to Merge Loans
One of the most important rights for a borrower is the right to merge loans. This means that if you have two student loans from different lenders, you can combine them into one loan with one monthly payment.
This will not only simplify your payments but also save you money on interest by having a fixed rate instead of a variable one. Merge your loans many times make sense if you are already in debt. This way, you can use one big loan to pay off all the small loans you have taken.
In technical terms, this is called debt consolidation and is sometimes beneficial for the borrower in terms of repayment of multiple loans.
- The Right to a Clear and Concise Contract
A clear and concise contract is necessary in order to provide the borrower with all of the information they need to make an informed decision. It should also outline how the loan will be paid back, any fees associated with non-payment, and how interest will be calculated.
You have the right to know what you’re signing. It’s essential that a borrower knows exactly what they’re signing before agreeing on anything. A clear contract will outline not only your obligations but also theirs.
This approach will make sure that both parties clearly understand their rights and responsibilities and are ready to abide by them.
- The Right to Cancel Loan Agreement
You have the right to cancel a loan agreement at any time after signing it and receive a full refund of all money paid. This means you are not obligated to repay the loan if you do not want to. If you plan on canceling your loan agreement, be sure to contact the lender immediately in order to avoid penalties.
However, if you want a loan, remember you always have 14 days where you can change your mind. Within this period, you can cancel the credit agreement with the lender.
When taking out a loan, make sure you keep up with paying back your loans. Otherwise, interest rates will continue to increase, and it can become even more challenging for you to pay back what you owe.
- The Right to Know the True Cost of Loan
Borrowers have the right to know the actual cost of their loan before they sign any paperwork. This includes not only the interest rate but also any additional fees that will be assessed to them.
This way, borrowers can know what they are getting into and think about the best time to take a loan before they commit.
One of the things lenders are required by law to disclose is the total monthly payment, including all finance charges and other charges imposed by either lender or dealer.
- The Right to Request a Copy of Your MPN
When a lender decides to offer you a loan, they will typically require that you sign an agreement called a Loan Agreement or Master Promissory Note (MPN). This document outlines the terms of your loan and the repayment plan.
If you are asked to sign this document without being given a copy to review first, don’t do it. As a borrower, you have the right to first get a copy of the agreement, so you can sign it after thoroughly reading and understanding the terms.
In addition to providing borrowers with copies of their MPNs, lenders should provide borrowers with periodic updates on their outstanding balance as well as all fees incurred by making payments.
- The Right to Receive Grace Periods
As a borrower, you have the right to receive grace periods and subsidiaries on certain loans. There are several ways you can do this. One way is to declare bankruptcy or file for grace periods. Bankruptcy may take some months or even years, but filing for grace periods is a quick way to delay payment for a short period.
During this period, no late fee or penalties will be charged to you. Also, the delay won’t result in the default or cancellation of your credit agreement.
