Consumer credit

Consumer credit

Pre-contractual information

The creditor is obligated to give you pre-contractual information before entering into a loan contract. In case you want to take a loan, lease, make a hire purchase or acquire a credit card, pre-contractual information must be entered into the European consumer credit standard information form, (714.09 KB, PDF) In case you want to obtain a loan linked with residential property, including a mortgage, the creditor must enter pre-contractual information into the European standard information form.European consumer standard information form. (616.29 KB, PDF)

Since the information forms have a uniform structure, you can use the information form to compare offers from different creditors.

The information sheet specifies the credit sum, the annual interest rate, the annual percentage rate of charge, the monthly repayment sum in case of a repayment schedule, default interests, all other possible fees in case if debts, and the options for withdrawal.

When comparing different offers, you should pay special attention to

  • Information on repayments,
  • Interest,
  • Annual percentage rate of charge,
  • Related costs, and
  • Costs in case of late payments.

Euroopa tarbijakrediidi standardinfo teabelehe näidis

Euroopa tarbijakrediidi standardinfo teabelehe näidis

 

 

Euroopa standardinfo teabelehe näidis

Remember!

  • Ask for the information sheet together with the offer before signing a contract.
  • Ask the creditor for addition information if anything remains unclear.
  • In addition to the information sheet, you may also ask the creditor for a copy of the draft contract to examine it.

Credit cards

It is relatively common to use credit cards to travel and make online purchases. Oftentimes, people think of credit cards as regular bankcards, but be aware that is still a loan. Therefore, you should think and do your research before applying for a credit card.

Prior to entering into a credit card contract

  • Think carefully whether you really need a credit card (for example, online purchases can be made with a virtual card or a debit-credit card),
  • Assess your actual ability to pay based on your current financial burdens and income and share this information with the bank,
  • Compare the terms and conditions of different credit cards by paying attention to the related costs of using the credit card and how you can repay used credit and what are the interest and default interest like,
  • Keep in mind you can compare the terms and conditions by using consumer credit information sheets and you can also find tables for comparing online (e.g. consumer web minuraha.ee comparison table),
  • Ask the bank for a copy of the draft contract to thoroughly examine it,
  • Do not hesitate to ask bank employees for addition information if the terms used in the contract are unclear or unknown to you.

Remember!

  • Sign the contract only when you have thoroughly examined it and you have no additional questions.

  • Be attentive also when entering into a contract when the credit card is offered by a retail chain or a store instead of a bank.

  • Keep in mind you have the right of withdrawal from the credit card contract within 14 days of signing it.

Difficulties in repayment of a loan

Difficulties in repayment of a loan can be most effectively avoided by realistically assessing your ability to pay and through thorough groundwork prior to accepting any financial burdens. However, if you are experiencing difficulties in repayment of a loan, the best solution is communication. You should discuss the situation among your family as well as the loan/lease/credit card/instalment provider to solve the situation. You may also turn to a debt adviser.

In case of difficulties in repayment of a loan

  • Do not let default interests, interests or other costs related to debt pile up, immediately get in contact with the lender and explain your situation,
  • Try to jointly find the best solution for you (such as one-time deferring of a repayment, changing the repayment schedule, a grace period, exchanging or selling purchased assets),
  • Find out whether and which costs relate to the solution and be honest with the lender if there are too cumbersome for you,
  • Keep in mind that if the amount of default interests and interest have become extremely high, you have the option of asking a court to decease unreasonable accessory obligations,
  • Keep in mind the lender has to explain in court the reason for filing a claim against you and you have to explain and give evidence as to why it is difficult for you to pay such large default interests and interests and bare other costs,
  • Keep in mind you also have the option of asking the court to go over the limitation period of the claim.

Remember!

  • Let the creditor know you are interested in finding a solution to the problem.

  • You have the right to submit through a court: an objection to the limitation period of a claim; a claim to decrease default interest, interest and other costs; an allegation for claim nullity (for example, if there were terms and conditions in the contract that were unreasonable harmful to you); a claim for decreasing procedure expenses and legal costs.

  • If the court comes to a decision, you are required to execute the decision as the decision will otherwise be subject to compulsory execution, plus execution proceeding costs will be added.

  • The most extreme case is declaring civil bankruptcy.

Loans

People generally take a loan to cover more expensive purchases. Keep in mind that entering into a loan contract obliges you to pay back to the creditor the loan amount plus the interest.

Prior to entering into a loan contract

  • Ask for offers from numerous lenders and compare them to find the best one for you as the terms and conditions of lenders can vary substantially,

  • Keep in mind that you have the right to receive a information sheet together with the offer in order to compare terms and conditions,

  • thoroughly inspect the terms and conditions of the loan contract,

  • Ask the lender for additional information in order to assess whether the offered loan contract meets your needs and financial situation,

  • Find out how much the loan will cost you in the end by taking into account interest (the cost for using credit) as well as other costs related to the loan,

  • Find out whether interest is based on the loan sum or the loan balance,

  • Decide if you want a fixed or a unfixed interest rate loan and ask the lender to explain the difference between these two,

  • Thoroughly think about what monthly repayment sum and repayment period best fit your lifestyle and income (the monthly repayment sum is smaller for a longer repayment period, yet the sum repaid in interest will be considerably larger than for a shorten repayment period),

  • Find out what will happen if you have difficulties in repaying the loan and how you can apply for a grace period.

If interest is based on the loan sum, you will have to repay the same interest sum each month until the last repayment. If interest is based on the loan balance, the interest will decrease as the loan balance decreases.

In case of a fixed interest, the lender will agree with you on an interest sum valid until the end of the loan period or a fixed period. In case of a variable interest, the interest is composed of a basic interest rate (e.g. Euribor) and a fixed interest margin. The fixed interest margin is generally unchanged during the repayment period, but for example the Euribor rate will usually change every 6 to 12 months. Therefore, the loan payment amount will change every 6 to 12 months.

You may partially or fully perform obligations rising from the loan contract before the prescribed time. The creditor has the right to demand a refund for the repayment of a loan ahead of schedule. The basis for the right of prescheduled return and refund allocation is stipulated in § 411 of Law of Obligations Act.

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