Cancelling a Loan or Credit Agreement Guide UK (Cooling-Off Rights)

When You Can Cancel a Credit Agreement

Your right to cancel depends on where and how the agreement was made. Under the Consumer Contracts Regulations 2013 and the Consumer Credit Act 1974, you have a 14-day cooling-off period if the agreement was concluded: online (website, email), by phone or post, at your home (doorstep selling), or at a venue other than the lender's business premises (e.g. a trade show, hotel, or your workplace). You do not have a statutory cooling-off period if you signed the agreement on the lender's premises (e.g. at a bank branch or a car dealership) — unless the lender voluntarily offers one. However, you may still be able to withdraw under the lender's own terms or under the right of withdrawal for certain types of credit. The right to cancel applies to: personal loans, credit cards, store cards, catalogues, hire purchase agreements, conditional sale agreements, and pawnbroking agreements. It does not apply to: overdrafts, mortgages (which have separate rules), secured loans, or agreements made on the lender's premises. If your agreement is covered, the lender must include a cancellation notice in the agreement paperwork — look for a box headed "Your Right to Cancel" with a cancellation form. If the lender failed to provide this, the cancellation period may be extended by up to 14 days or indefinitely in some cases.

The 14-Day Cooling-Off Period Explained

The 14-day cooling-off period begins from the date the agreement is concluded (signed) or from when you receive the agreement paperwork (including the cancellation notice), whichever is later. For credit cards and running-account credit, the 14 days run from the conclusion of the agreement. For fixed-sum loans, HP, and conditional sale, the 14 days run from the date of the agreement or the date you receive a copy — whichever is later. If the lender failed to provide the required cancellation notice, the cancellation period extends by 14 days from when you receive it, up to a maximum extension beyond the initial period. During the 14-day cancellation window, you can change your mind for any reason — you do not need to prove the product is faulty or that you were mis-sold. This is a no-fault cancellation right. The lender cannot charge you a penalty for cancelling, but you must pay back the credit drawn down plus interest at the agreed rate for the period the money was in your possession. If you also received goods under a linked credit agreement (e.g. a sofa bought on credit), you must return the goods. The lender can collect the goods at your expense if you do not return them. Cancelling within the 14-day period means the agreement is treated as if it never existed — your credit file should show no trace of the agreement.

How to Cancel (Written Notice, Templates)

To cancel a credit agreement within the 14-day cooling-off period, you should give written notice to the lender. Use the cancellation form included with the agreement if one was provided. If not, write a letter or email including: your full name and address, the agreement reference number, the date of the agreement, and a clear statement that you are cancelling under the Consumer Credit Act 1974. You can use the following template paragraph: "I [name] hereby give notice that I wish to cancel the credit agreement [reference number] dated [date] made between myself and [lender name] under section 66A of the Consumer Credit Act 1974." Send the notice by recorded delivery post or by email with a read receipt. The cancellation is effective from the date you post or send it, not the date the lender receives it — so postmark evidence is important. You can also cancel by completing the lender's online cancellation form, but keep a screenshot or confirmation email. If the lender does not acknowledge your cancellation within 14 days, follow up in writing. If you received goods as part of the agreement (e.g. a car on HP), the lender may require you to return them at your cost — you must make them available for collection. The lender has 30 days from cancellation to collect the goods, after which you can dispose of them. For credit cards, cancelling means returning any cards or PIN reminders. Always keep copies of all correspondence. If the lender claims they did not receive your cancellation, your proof of posting (from the Post Office) will be crucial evidence.

What Happens After You Cancel

After you cancel a credit agreement within the cooling-off period, the following applies. Repayment of credit: you must repay any money drawn down (the loan amount or the credit used on a card) plus interest at the agreed APR for the period from drawdown to cancellation. The interest is calculated on a simple daily basis, not compounded. You do not have to pay any arrangement fees, early repayment charges, or cancellation penalties. Timing: you must repay within 30 days of sending the cancellation notice. If you do not repay within 30 days, the lender can treat the agreement as continuing. Linked transactions: if you bought goods with the credit (e.g. a television), the sale contract is automatically cancelled too — you must return the goods, and the seller must refund any deposit you paid. Insurance and add-ons: any PPI, payment protection, or warranty sold alongside the credit is also cancelled automatically. Credit file: the lender must report the account as "cancelled within cooling-off period" to credit reference agencies — it should not appear as an active account or a default. Check your credit file (via Experian, Equifax, or TransUnion) 2–3 months after cancellation to ensure it is correctly marked. Refunds: the lender must refund any upfront fees or charges you paid within 30 days of receiving your cancellation. If the lender fails to process the cancellation correctly, complain using the lender's formal complaints process and escalate to the Financial Ombudsman Service if needed.

Cancelling Hire Purchase and Conditional Sale Agreements

Hire purchase (HP) and conditional sale agreements for vehicles or goods have special cancellation rules. If you signed the HP agreement away from the lender's premises (e.g. at a car dealership that is not the lender's own office, or online), you have the standard 14-day cooling-off right under the Consumer Credit Act. However, if you signed the agreement on the lender's premises (e.g. at a bank or a finance company's office), there is no statutory cancellation right — but you may still have rights under the Consumer Contracts Regulations if the sale was at a distance. If you cancel an HP agreement within the 14-day period, you must return the vehicle to the lender at your expense (if the lender asks for it within 30 days). You must also pay for any damage beyond fair wear and tear. If you took the vehicle, you are liable for the cash price of the vehicle if it is not returned — but only if you were told in writing before signing that this liability applies. If you signed a V5C (log book) or registered the vehicle in your name, you must transfer it back. For conditional sale agreements, the same rules apply as HP — the goods do not become yours until the final payment is made, so cancellation returns ownership to the lender. If you are outside the cooling-off period, you can still voluntarily terminate a HP agreement under section 99 of the Consumer Credit Act — you pay 50% of the total amount payable (minus any payments already made) and return the goods. See our Car Finance guide for more on HP and PCP termination rights.

Credit Agreements You Cannot Cancel

Not all credit agreements come with a statutory cooling-off right. You cannot cancel under the Consumer Credit Act if: you signed the agreement on the lender's premises (e.g. at a bank, building society, or credit union office), the agreement is a mortgage or secured loan on land (separate rules under the Mortgage Conduct of Business rules apply — typically a 7-day reflection period), the agreement is for business credit (business loans, business credit cards, or commercial hire purchase — the Consumer Credit Act only protects individuals), the agreement is an overdraft (current account overdrafts do not have a cancellation right, though you can usually close the account and repay the balance without penalty), the agreement is a credit union loan where the loan amount is under £100, the agreement was concluded by telephone without written documentation (the Consumer Contracts Regulations may still apply), or the agreement is for pawnbroking conducted on the premises. For agreements where no statutory cancellation right exists, you may still be able to withdraw from the agreement early — but this is treated as early settlement rather than cancellation, and you may be liable for interest and early repayment charges. See our Paying Off Credit Early guide for early settlement rules. Some lenders voluntarily offer a 14-day cooling-off period even where not legally required — check your agreement documents. If the lender misrepresented the product or used unfair pressure, you may have additional rights under FCA rules or the Consumer Protection from Unfair Trading Regulations 2008.

FAQs

Can I cancel a loan I signed in a bank branch?

No — if you signed on the lender's premises, there is no statutory cooling-off period under the Consumer Credit Act. However, the bank may have its own voluntary cancellation policy — read your agreement carefully.

Do I have to pay interest if I cancel within 14 days?

Yes — you must repay the capital drawn down plus interest at the agreed rate for the period you held the money. You do not have to pay early repayment charges, arrangement fees, or penalties.

What if the lender refuses to accept my cancellation?

Complain in writing to the lender's formal complaints department. If they still refuse, escalate to the Financial Ombudsman Service (free). Keep proof of your cancellation notice — recorded delivery postmark is best evidence.

Does cancelling a credit agreement affect my credit score?

If you cancel within the 14-day cooling-off period, the lender should report the account as "cancelled" or "withdrawn within cooling-off period." It should not affect your credit score or appear as a settled account or default.

Can I cancel a car finance agreement after driving the car?

If you signed away from the lender's premises (e.g. at the dealership, which is not the lender's office), you can cancel within 14 days. You must return the car and pay interest for the period you used it, plus any damage beyond normal wear and tear.