What is the cooling-off period for a credit agreement UK?

Most regulated credit agreements have a 14-day cooling-off period from the date you sign or receive the agreement (whichever is later). During this period you can cancel without giving a reason. You must repay any money borrowed within 30 days and pay interest for the days you had the money. This applies to personal loans, credit cards, and car finance (HP and PCP).

What is the difference between APR and interest rate?

The interest rate is the cost of borrowing expressed as a percentage. The APR (Annual Percentage Rate) includes the interest rate PLUS any fees and charges, giving you a more complete picture of the total cost. Always compare APR, not just interest rates, when comparing deals. The 'representative APR' is the rate at least 51% of approved applicants receive.

Can I cancel a credit agreement after signing UK?

Yes — you have 14 days to cancel most regulated credit agreements (the 'withdrawal' or 'cooling-off' period). After 14 days, you can still repay early at any time, but you may owe an early settlement fee of up to 1% of the remaining balance (or 0.5% if there is less than a year left on the agreement). Request an early settlement figure from the lender.

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How to Read a Credit Agreement Before Signing — UK Guide

What to check before signing a credit agreement in the UK. Covers APR, total repayable, fees, cooling-off rights, and common traps to watch for.

By PocketWise · 25 March 2026 · 5 min read

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Credit agreements are designed to be legally binding, and lenders rely on most people not reading the detail. Here is what to check before you sign anything — and the common traps to watch for.

Key Terms to Check Before Signing

Term	What to look for
APR (Annual Percentage Rate)	The total cost of borrowing including fees — lower is better
Representative APR	The rate at least 51% of approved applicants get — you may be offered a higher rate
Total amount repayable	The full amount you will pay back including all interest and fees
Monthly repayment	The amount you must pay each month — check this is affordable
Term (duration)	How long the agreement lasts — longer terms mean lower payments but more interest
Fees	Arrangement fees, annual fees, early repayment charges, late payment fees
Default interest rate	The higher rate charged if you miss payments
Variable or fixed rate	Fixed stays the same; variable can change — check what triggers rate changes
Security	Is the debt secured against your home or another asset?

Types of Credit Agreement

Type	Secured?	Typical APR	Key risks
Personal loan (unsecured)	No	3–15%	Fixed repayments, early repayment fee possible
Credit card	No	20–40%	Very high interest if you don’t pay in full each month
Hire Purchase (HP)	Yes (asset)	5–15%	Car/goods belong to lender until final payment
PCP car finance	Yes (asset)	5–12%	Balloon payment at end, mileage limits, excess charges
Secured loan	Yes (home)	3–8%	Home at risk if you cannot pay
Overdraft	No	~40% EAR	Charges add up quickly on ongoing borrowing
Buy Now Pay Later	No	0% (initially)	Missed payment may trigger interest or fees
Catalogue credit	No	30–60%	Very expensive if not paid off quickly

The APR Explained

APR detail	What it means
Representative APR	The rate 51% of accepted applicants will get or better
Personal APR	The actual rate YOU are offered — may be higher based on your credit score
0% APR	No interest for a promotional period — check what applies after it ends
Variable APR	Can change at any time — check the small print for what triggers changes
Fixed APR	Rate stays the same for the duration — more predictable

APR Cost Comparison

Amount borrowed	APR	Term	Monthly payment	Total repayable	Total interest
£5,000	5%	3 years	£150	£5,396	£396
£5,000	10%	3 years	£161	£5,806	£806
£5,000	20%	3 years	£186	£6,688	£1,688
£5,000	35% (credit card)	3 years (min payments)	Varies	£7,500+	£2,500+

The difference between 5% and 20% APR on a £5,000 loan is over £1,200 in extra interest.

Common Traps in Credit Agreements

Trap	What to watch for
Introductory rate ending	0% period ends and rate jumps to 20%+ — set a reminder before it expires
Balloon payment (PCP)	Large final payment (£5,000–£15,000) due at end of agreement — plan for this
Mileage limits (PCP)	Excess mileage charged at 5–15p per mile — can add £1,000+
Default interest	Rate may jump to 25%+ if you miss payments
Payment protection insurance (PPI)	May be bundled in — check if it has been added and whether you want it
Arrangement fee added to loan	Fees added to loan balance mean you pay interest on the fee
Minimum payment trap (credit cards)	Paying only the minimum means it takes decades to clear the balance
Guarantor obligations	If you are a guarantor, you are fully liable for the debt if the borrower defaults

Checklist Before Signing

✓	Question to ask yourself
	Is the APR the same as what was advertised? (You may have been offered a different rate)
	What is the total amount repayable — not just the monthly payment?
	Can I comfortably afford the monthly payment even if my circumstances change?
	Are there any fees (arrangement, annual, early repayment)?
	Is the rate fixed or variable?
	What happens if I miss a payment?
	Is the debt secured against my home or an asset?
	Is there a cooling-off period (usually 14 days)?
	Does the agreement include any insurance or add-ons I did not ask for?
	Have I compared this deal with at least 2 other lenders?

Your Rights

Pre-Contract Information

Right	Details
Adequate explanation	The lender must explain the key features, risks, and costs before you sign
Pre-contract disclosure	You must receive a Standard European Consumer Credit Information (SECCI) form
Time to consider	You should not be pressured into signing immediately
Copy of the agreement	You must receive a copy of the signed agreement

Cooling-Off Period

Detail	Information
Duration	14 days from signing or receiving the agreement
How to cancel	Write to the lender — keep proof
Repay borrowed money	Must repay within 30 days of cancellation
Interest payable	Only for the days you had the money
Applies to	Personal loans, credit cards, HP, PCP, store credit
Does NOT apply to	Mortgages (different rules), buy now pay later (unregulated), some business credit

Early Repayment

Detail	Information
Right to repay early	Yes — at any time
Early settlement fee	Maximum 1% of outstanding balance (0.5% if less than 12 months remaining)
How to get the figure	Request an “early settlement figure” from the lender
Credit cards	No early repayment fee — just pay the balance

Red Flags — When to Walk Away

Red flag	Why it’s concerning
APR above 30% on a personal loan	You may qualify for a better rate elsewhere or this signals risky lending
Pressure to sign today	Legitimate lenders give you time to consider
Verbal promises not in the written agreement	Only what is written counts legally
Fees added without clear explanation	All fees must be disclosed before signing
Lender does not check your income or affordability	This suggests irresponsible lending
Agreement is confusing or unclear	Ask for a plain English explanation — it is your right

What to Do If Something Goes Wrong

Issue	Action
You were mis-sold the credit	Complain to the lender, then the Financial Ombudsman Service
You cannot afford repayments	Contact the lender immediately — they must offer forbearance
You were charged fees not in the agreement	Dispute in writing, escalate to Financial Ombudsman
The lender will not provide an early settlement figure	They must — contact the Financial Ombudsman if they refuse
Your personal APR is much higher than advertised	This is allowed if you were informed before signing — but you can shop around

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