How do I cancel my loan application?
Under the Consumer Credit Act 1974 you have the right to cancel your loan if:
- your application has been made but hasn’t been approved yet and you haven’t signed a credit agreement
- you’ve signed your credit agreement and are still within the 14-day cooling-off period. This period starts from the moment you sign your credit agreement
You can also cancel your loan if you signed the agreement away from the lender’s normal premises, such as in your home or at a stand in a shopping centre. In these circumstances you have a five-day cooling off period from the day you received a second copy of the agreement (this one will contain information on how to cancel it).
To cancel your loan application, you will need to contact the lender directly. Notice to cancel your contract can usually be given verbally or in writing. If you’re worried about your lender upholding your cancellation, it’s best to obtain a written copy just to be on the safe side.
What information will the lender need?
When you ask the lender to cancel your loan application you may not need to tell them why, but make sure it’s crystal clear you’re asking them to do so. Otherwise, they may not be bound to honour your cancellation request.
Your credit agreement will tell you who you need to contact, how you should contact them and what information you need to give. You should follow your credit agreement guidelines in order to make sure your loan is cancelled. If you don’t understand the terms of your agreement, you can seek free, legal advice from Citizen’s Advice.
What happens when the loan is cancelled?
If you’ve already received the money for your loan, and you want to cancel your loan, you’ll be expected to pay it back. The lender must give you 30 days to do so.
It’s important to note that any contract you have in place for an item you bought on credit won’t be affected by cancelling your loan application. For example, if you used your loan to pay for a new boiler before cancelling your credit agreement, you’d still have to pay for the new boiler.
Does cancelling a loan application affect my credit score?
When you apply for a loan, the application leaves a footprint on your credit history and affects your credit score. You can avoid making multiple applications by using an eligibility checker to see whether you’re likely to be accepted for a loan before applying. This tool won’t leave a footprint for lenders to see, as it only performs a soft search on your credit report, not a hard search.
Whether or not cancelling a loan affects your credit score depends on four things:
- If the lender has made their credit inquiry. If you cancel before they’ve had a chance to perform a hard search on your credit report, your credit score won’t be affected
- If the lender has made their credit inquiry but no agreement has been signed. In this scenario a footprint has already been left on your credit report. But cancelling your loan application will do no further damage to your credit score. The good news is that the impact of a single credit inquiry is minimal and won’t make much of a difference to your credit score
- If you cancel multiple applications after the lender has made a credit inquiry. Cancelling multiple loan applications will have much more of a negative affect on your credit score. Lenders will see the multiple applications on your credit history whether you cancel them or not – which can raise alarm bells
- If you cancel your loan during the cooling-off period. It’s possible your credit score might go up in this scenario – as your debt-to-income ratio improves. However, your credit score will have already been marked by your credit application. This means there may not be a positive difference between your credit score before you applied for the loan and after you cancelled it
It’s also important to note that cancelling your loan application will not affect future credit decisions you make - either in a positive or negative way. The only exceptions to this rule are if you make multiple credit applications – as these will show up on your credit history and can make you look desperate for credit.
Things to consider before cancelling
Cancelling your loan is a big decision and there are several things you need to take into account beforehand. If you’re in the cooling-off period, you should consider whether cancelling your loan or making an early settlement is the best option for you.
As already mentioned, cancelling your loan during your cooling-off period won’t remove the footprint from your credit report. However, you won’t need to pay any extra fees or charges.
Another option is to settle your loan early. You may be able to do this if it’s covered by the Consumer Credit Act or the terms and conditions of your loan allow for early settlement.
There may be extra fees involved, so before deciding to pay off your loan balance early you should speak to your lender. Ask them for the total amount you need to pay in order to clear the loan in writing – this is called an ‘early settlement figure’. The lender must include all interest and charges you’ll need to pay. This option will have a positive impact on your credit score because your debt-to-income ratio will go down. Plus, it will show financial companies that you can manage your money well.
Whichever path you decide to take, make sure you research your options fully so you can make the best financial decision for you.