Sheet FCL · Item 03 of 06The contract
Before a car loan is entered, the National Credit Code requires the lender to give the borrower a precontractual statement setting out what the contract will contain, and an information statement about their statutory rights and obligations. Section 17 of the Code then lists what the contract document itself must show, from the lender’s name and the amount of credit to every fee, any commission and any credit-related insurance paid for with the loan.
General information, not legal advice. This page summarises the Code’s requirements in plain words; the National Credit Code (Schedule 1 to the National Consumer Credit Protection Act 2009) has the exact wording, and some requirements differ for small amount and low cost credit contracts. Moneysmart points to free legal advice from community legal centres and Legal Aid agencies.
A summary of section 17 for an ordinary car loan. Where the Code says “if ascertainable”, the item appears when it can be worked out at the time.
| Line on the contract | What the Code asks for | Section |
|---|---|---|
| Credit provider | The credit provider’s name. | s 17(2) |
| Amount of credit | The amount, and who it is to be paid to and how much each receives, where both are ascertainable. | s 17(3) |
| Interest rate | The annual percentage rate or rates and how each applies; for a rate set by reference to another rate, its name, the margin, where it is published and the current rate. | s 17(4) |
| Interest method | How interest charges are calculated and how often they are debited. | s 17(5) |
| Total interest | The total interest payable, if ascertainable, where the contract would be paid out within 7 years on the Code’s assumptions. | s 17(6) |
| Repayments | The amount or how it is calculated, the number, the total (on the same 7-year basis), when the first is due and how often they fall. | s 17(7) |
| Fees and charges | Each credit fee or charge that is or may become payable, when, its amount or method of calculation, and the total to the extent ascertainable. | s 17(8) |
| Changes | A statement if the rate, a fee or a repayment can change or a new fee can be added, and how the borrower will be told. | s 17(9) |
| Statements | How often statements of account will be sent, unless the rate is fixed for the whole term with no provision to vary it. | s 17(10) |
| Default rate | If a higher rate can be charged when payments are in default, a statement saying so, the rate and how it applies. | s 17(11) |
| Enforcement expenses | A statement that enforcement expenses may become payable in the event of a breach. | s 17(12) |
| Security | A statement if a mortgage or guarantee is taken, and a description of the mortgaged property, so far as ascertainable. | s 17(13) |
| Commission | If commission is paid by or to the credit provider for introducing the business, that fact, who pays it, who receives it and the amount if ascertainable. | s 17(14) |
| Insurance financed | If the lender knows credit-related insurance will be paid for under the contract: the insurer, the amount, the kind of insurance and any commission the insurer pays for the introduction. | s 17(15) |
When the car is security, the contract says a mortgage is taken and describes the property, which is the car. Moneysmart explains what that means: with a secured loan, if repayments are not met the lender can take the vehicle and sell it to cover the loan. What follows from that line is item 6.
The amount-of-credit line names the people the money goes to where they can be worked out, and the commission line names who is paid for introducing the loan. Moneysmart lists fees that can arise on a car loan beyond the lender’s own, including a broker fee, which it says “must be disclosed on the finance contract”, and a dealership or introducer fee.
Where the lender knows credit-related insurance will be paid for under the loan, the contract must name the insurer and the amount payable to it or, if that amount cannot be known yet, how it is calculated. Moneysmart’s page on add-on car insurance says a car dealer may try to “add on” insurance when a vehicle is bought, and that it can include cover if the buyer is unable to repay the car finance.
Both must be given before the contract is entered into, or before the borrower makes an offer to enter it, whichever comes first. The precontractual statement may be the proposed contract itself or a separate document.
If a lender quotes a comparison rate before the contract, it must be calculated as the regulations prescribe and carry the prescribed warnings. Moneysmart describes a comparison rate as one figure showing the cost of the loan, with the interest rate and fees both counted in it, and says to compare the same loan amount and term.
If the borrower signs the contract document and returns it, the lender must give a copy to keep.
An alteration the lender makes after the borrower signs is ineffective unless the borrower agrees to it in writing, except an alteration that reduces the borrower’s liabilities.
The borrower may end the contract by written notice to the lender unless credit has already been obtained under it. The lender may still keep or require fees or charges incurred before then that would have been payable under the contract.
No later than 14 days after the contract is made, the lender must give a copy of it in the form in which it was made, unless a copy to keep was already given.
A lender that enters a contract that does not meet these requirements commits an offence under the Code. Several of the lines above, including the amount of credit, the rate, the interest method and total, the changes statement, the default rate and the insurer’s name and amount, are “key requirements”. A party to the contract, a guarantor or ASIC can apply to a court for an order about a breach of a key requirement, and the court can impose a penalty.
Moneysmart’s plainer advice is about the moment before any of that: “Take your time and ask who is involved, and importantly what additional fees are included, before you sign the paperwork.”
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04 · Car loan scams