All borrowers have rights and responsibilities when applying for unsecured loans. It’s crucial to educate yourself about borrower rights — and to carefully weigh the need for a loan before signing. Here’s what you need to know.
1. Knowing your rights as a borrower to roll over the loan
Rollover is common with short-term loans like payday loans (about 14 days in length). It allows the borrower to pay only the additional interest and fees and carry the balance until the next payday.
U.S. rollover policy
Rollover is allowed only in some states. Because it involves another interest payment on top of the previous one, rollovers are prohibited in 21 states; many others limit how many times a loan may be rolled. Always check local laws and read the loan contract carefully — particularly the points related to interest rates, repayment terms and rollovers.
Other borrower rights that apply to payday loans
You always have the right to choose the best loan, get a detailed accounting of loan charges, back out during a cooling-off period, and communicate with your lender about any changes to the loan.
2. Fees and charges: what you should know
Under the Consumer Credit Protection Act, every borrower has the right to receive a confident estimate of all interest rates, fees and charges before signing. Every lender must legally disclose the full cost of the loan.
Beware of upfront fees
Until you sign the loan, the lender is not allowed to charge any additional fees. All charges should be merged into your loan. If extra fees are charged before you receive the money, you are dealing with a predatory lender.
3. Installment loans and borrowers’ essential rights
- The right to choose — no lender should coerce you into a loan that they like.
- The right to full disclosure — all terms, conditions, fees and charges in writing before you sign anything.
- The right to cancel — a cooling-off period of three business days after you receive the disclosure statement.
- The right to a grace period — before you start repayment. Always stated in the loan agreement.
- The right to full communication — to be told of any changes in terms or conditions, including if the loan is sold to a new party.
If your lender violated any of your rights, notify them immediately, in writing. If they don’t fix it, consider taking your complaint to the authorities or a lawyer.
4. Payday loans: what borrowers should know about their options
Applying for a payday loan typically requires:
- A valid government-issued ID
- A current checking account statement dated within 15 days showing at least 30 days of activity with no negative balance or excessive NSF/overdraft fees
- Verification of residence in the state where you apply
- Three months of verifiable employment
False information on a loan application is considered fraud and can have serious consequences.
Borrowers’ and lenders’ responsibilities
- Lenders must disclose everything: amount borrowed, terms, all penalties, and all charges in case of delinquency or default.
- Under the Consumer Financial Protection Bureau (CFPB) rules, some states require lenders to verify a borrower’s ability to repay, limit debit attempts against your account, and prohibit more than three consecutive loans to one borrower.
5. Personal loans: borrower’s rights and responsibilities
Regardless of why you need the money, your rights include:
- Choose your loan without coercion.
- Full disclosure of costs and terms in writing before signing.
- A grace period before repayment starts.
- Cancellation within three business days after receiving the disclosure.
- Full communication about any changes in terms or a sale/transfer of the loan.
6. Loan consolidation for borrowers
A debt consolidation loan is especially useful if your debt is mostly high-interest (like credit cards). Personal-loan rates are often far lower than credit-card rates, so consolidating can reduce your interest and fees — and make your monthly payments easier to manage.
For consolidation loans, your rights include all of the above plus:
- The right to dispute information in your credit report
- The right to have inaccurate information corrected or removed
- The right to ask the lender to change the terms in response to a hardship
7. Borrower’s right to privacy
Lenders collect a lot of information when you apply: your name, address, phone numbers, employer, income, assets and credit report. Under the Gramm-Leach-Bliley Act of 1999, you have an ultimate right to privacy and can control how your personal financial information is shared with outside parties.
Read your lender’s privacy notices carefully — they come with statements, invoices, or inside your statement itself. Decide how much information sharing you’re comfortable with. That decision should be up to you, not your lender.