Glossary · UK
What is Cooling-Off Period (Consumer Credit)?
A statutory right allowing a borrower to withdraw from most regulated credit agreements, free of charge, within 14 days of signing (or of receiving a copy of the agreement, if later), requiring only repayment of any capital advanced plus interest for the days credit was actually used.
Full Definition
Under the Consumer Credit Act 1974 and related regulations, most regulated credit agreements -- including personal loans, credit cards, and many hire purchase agreements -- come with a statutory cooling-off period of 14 days, giving the borrower a legal right to change their mind and withdraw from the agreement without needing to give a reason and without any cancellation fee. The 14-day period generally runs from whichever is later: the day the agreement is signed, or the day the borrower receives a copy of the signed agreement, ensuring the borrower has had the full window with the paperwork actually in hand rather than losing days to postal delay. Withdrawing during the cooling-off period does not mean the credit was entirely free: if funds have already been advanced or spent, the borrower must repay the capital in full, together with any interest that accrued for the period the credit was actually available to them, calculated on a daily basis up to the point of withdrawal, and this repayment is normally due within 30 days of giving notice of withdrawal. The right is separate from, and in addition to, the general 14-day cancellation right consumers have for most goods and services bought at a distance or off-premises under separate consumer contract regulations, and lenders must clearly set out the withdrawal right and the process for exercising it within the credit agreement's standard information. Worked example: a borrower takes out a £5,000 personal loan and the funds are paid into their account immediately; nine days later, having reconsidered, they give written notice withdrawing from the agreement under the statutory cooling-off right; because nine days' worth of interest had already accrued and the £5,000 capital had been advanced and partly spent, they must repay the full £5,000 plus that nine days' interest within 30 days of giving notice -- they are not entitled to keep any of the borrowed capital interest-free, but they avoid being tied into the loan's full term, any early repayment considerations, and any arrangement or product fees the loan agreement might otherwise have carried.