Challenging unfair loan chargesInvestigating your debt

You will need to scrutinize the small print to work out whether you are liable

The first thing to do is to have a look at your credit agreement form. If you don't have the original agreement, contact your lender and ask for a copy to be sent to you.

At the top of the agreement there may be a series of clauses, often listed as A, B, C and so forth. 

You're looking out for a clause worded something like this:

The legal charges shall become due upon completion of the loan. The lender may at its discretion defer collection of the said charges, (the Borrower still having the right to pay them) but will require payment no later than the date of settlement of the loan.

There may also be a reference to the legal charges in the letter from the lender's solicitors which would have accompanied the credit agreement. 

The reference might read something like:

The legal costs and disbursement of £xxx referred to in the credit agreement are now due and payable by you to the lender. If you wish to defer payment of these legal costs and disbursements you may do so provided payment is made no later than the date of final settlement of the loan. 

In this event interest will accrue on the said legal costs and disbursements until payment is made. The rate at which interest will accrue is the current rate of interest specified in the credit agreement.

Most people reading these clauses won't realise the implications of agreeing to defer the legal fee. Indeed many people may not even have noticed the clauses in the first place. 

You will need to write a letter to your lender to get the ball rolling

You will need to write to your lender and ask it to send you a copy of your credit agreement if you don’t already have one. This will allow you to work out whether you are liable for any hidden fees.

You should also request that the lender outlines the total amount it would expect paid back if you redeemed your loan now – this is called the redemption amount.

You will need to ask for a detailed breakdown so that you know how this figure is made up. For example, part of this figure may be a penalty for redeeming your loan early, and part of it may be interest building up on legal fees or other charges (often called default interest).

1 Seek advice

There are a number of organisations you can speak to to help you get to grips with these findings and understand the implications they might have. The advice is free and they may be able to refer you to specialist legal services.

2 Enlist a solicitor

If you wish to challenge your loan agreement for any reason then you will need to seek specialist legal advice. It is vital you use a solicitor who specialises in the field of consumer finance litigation - the Community Legal Service (0845 345 4345) provides information about legal services in your area.

'No win, no fee' arrangements have changed the legal system so that people in difficult financial circumstances may have more opportunities to find legal help.

Or Which? can refer you to a specialist solicitor who may be able to help. Contact Teresa Fritz through the Which? customer services helpline on 0845 307 4000.

We cannot guarantee that you will have a case against your lender, or if you do that it will be successful. However, we do know of individuals who have taken cases against these lenders and won. The main thing is to find out where you stand now.

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