Buying on Credit (No. 246)
|This information applies to British Columbia, Canada. Last reviewed for legal accuracy by Wendy Andersen, Digby Leigh & Company, and Laura Cox, Consumer Protection BC in October 2017.|
When you buy “on credit”, you buy now and pay later. This can range from taking out a loan for a new car to using a credit card to buy groceries. Your rights can differ in important ways depending on how you buy on credit.
Understand your legal rights
Your rights to what you buy can vary
Buying on credit means you get something now in exchange for a promise to pay later. Your rights to the item you buy can vary depending on the terms of the promise.
In some cases, you might not own the item until you finish paying for it. Say you want to buy a piano. You might agree with the seller to pay for it over two years, with interest. You get the piano immediately. But the seller might have you sign an agreement saying the seller still owns the piano until you make all the payments.
In other cases, you might own the item right away, but the seller or lender gets special rights to it. Say you want to buy a new car. You might get a loan from your bank, and agree to pay the loan back (plus interest) over a certain time period. The bank might have you sign an agreement saying if you default on the loan (such as by missing a payment), the bank can take the car to cover what you owe.
When you buy with a credit card
When you buy something with a credit card, you similarly buy now and pay later. But when you buy with a credit card, you own the item right away. And the credit card company can’t take the item if you don’t make a credit card payment.
So if you buy that piano (or that new car) with your credit card, you own it right away. You have to pay the purchase price to the credit card company (plus interest if you don’t pay off your purchase with your next payment). But the credit card company can’t take the piano if you fail to make your payments. (They can collect the debt in other ways, however.) For more on your rights relating to credit cards, see our information on credit cards (no. 247).
If you sign a security agreement
When you buy something on credit, you typically sign a security agreement. This agreement may be called various names (such as a “conditional sales agreement” or a “lease with an option to purchase”). But they all work in a similar way. Basically, it will say you give the other party a security interest. This is a property interest you give them to ensure you pay the money you owe them. The property is called collateral. The debt becomes a “secured debt” and the other party becomes a “secured creditor”.
If you default
If you default on a secured debt (such as by missing a payment), a secured creditor can take the collateral and sell it. This is also called “seizing” or “repossessing” the collateral. They can also sue you for the amount owing on the debt.
If the collateral is “consumer goods”
Under the law in BC, two rules kick in to protect you if the property you put up as collateral is “consumer goods”. This is property that’s “used or acquired for use primarily for personal, family or household purposes”.
For this type of collateral, if you default, the secured creditor can seize the property. Or they can sue you for the amount owing on the debt. But they can’t do both. This is called the “seize or sue rule”. It means the creditor has to decide whether to seize the collateral or take you to court.
The “two-thirds rule” comes into play if you’ve paid back at least two-thirds of what you owe on a secured debt relating to consumer goods. In this case, the secured creditor needs a court order before seizing the collateral. If you’ve paid back less than two-thirds, the creditor can seize the collateral without going to court.
If a secured creditor seizes goods
If a secured creditor seizes collateral under a security agreement, they must follow a procedure set out under the law.
If the creditor wants to sell the collateral
The secured creditor must give you at least 20 days’ written notice before selling the collateral. The notice must include the amount required to pay off the debt, as well as the amount in “arrears”. Arrears are payments that were due but have not yet been paid.
If the collateral was “consumer goods”, the notice must spell out that as long as you pay off the arrears plus the creditor’s expenses of seizing the property, you may reinstate the security agreement. The creditor must then return the seized property.
If you don’t pay the amounts set out in the creditor’s notice, the creditor can proceed to sell the collateral. If they do, they must use commercially reasonable means to get a reasonable price for it. This doesn’t mean they must advertise in every paper from here to Calgary, but they must use reasonable efforts to get a fair market price.
After the sale, the creditor must pay you any amount left over after they are fully paid.
If the creditor wants to keep the collateral
A creditor who plans to keep collateral they seized must give you written notice of their proposal to do so. You then have 15 days to give them a “notice of objection” if you don’t want them to keep the property. If you do so, the creditor must then sell the collateral, following the rules described above.
What happens if I make a late payment?
Credit agreements must say what fees and interest charges you will have to pay if you make a late payment or a partial payment. If a creditor accepts a late or partial payment, it doesn’t change your obligations for future payments.
If you’re concerned with the cost of buying on credit
When you borrow money to buy something, there are laws requiring creditors to disclose all borrowing costs. Consumer Protection BC oversees these laws.
- Toll-free: 1-888-564-9963
- Web: consumerprotectionbc.ca
If you’re struggling with debt
The Credit Counselling Society is a non-profit society that helps people better manage their money and debt.
- Toll-free: 1-888-527-8999
- Web: nomoredebts.org
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