Consumer credit loans are the ones you take out to cover your current needs (usually short-term ones), for instance when you want to refurbish your home or go on that much desired holiday. Each bank determines its own consumer credit policy and conditions. However, there are certain conditions that both you, as an individual consumer, and the bank, as a borrower, need to comply with.
There are 3 main factors you need to consider in such case:
- Pre-contractual information and the way the annual interest is calculated;
- The right of the consumer to withdraw from the contract and the right to early repayment;
- The right to recourse to dispute resolution procedures.
The first factor concerns the so called right of information, which the consumer has even before concluding the credit loan contract. That is necessary so that the consumer can compare offers from different banks and make an informed decision. This information should be given to the consumer free of charge, in paper or other form, and should be presented in a clear and understandable way. At the request of the consumer, the bank/creditor should also provide the draft credit loan contract. Always read the information provided very carefully, including the general terms and conditions which should include at least: the situations when the bank can change the interest rate, the general expenses related to servicing of the loan and conditions on the early repayment.
When it comes to the interest rate, bear in mind that if you default on your loan, the interest rate should be no higher than the statutory one (the main interest rate of the Bulgarian National Bank plus 10 per cent over this amount).
The second factor concerns the right of withdrawal. You have the right to withdraw from the contract without stating a reason for this and within 14 days of its conclusion without owing penalties and compensation to the bank (but you will still owe interest up until repayment). In such case you owe repayment no later than 30 calendar days as of the date of withdrawal. In addition, you also have the right to repay partially or in full your credit loan at any time where you will not owe any penalties but you will need to compensate the bank for the expenses made by it concerning the early repayment.
The acceleration clause. This clause comes into play when you default on your loan even when it comes to a single installment. Immediate consequences stemming from that are that you will owe the principal amount along with penalty interest for the delay and court fees and expenses. The penalty interest starts running from the day following the day when you were supposed to pay the installment and continues to run until repayment of the installment.
The third factor concerns your rights to legal defence when you consider that these have been violated by the creditor. The contract needs to stipulate expressly these rights, in particular your right to submit pleas and objections. The creditor is obliged to respond to you in writing within 30 days as of receipt of the plea or objection. If the creditor does not respond or the respond is not satisfactory, you can turn to the Consumer Protection Commission or the Bank Supervision at the Bulgarian National Bank. They are obliged to rule on your plea within a month. Alternatively, you can pursue court litigation against the creditor where you would have a right of compensation for the damage sustained.
Do bear in mind that any covenant or agreement between you and the bank which limits or excludes the above rights is null and void.