Understanding point-of-sale loans

10/06/2019

Financing is often sought for buying cars, laptops, paying for courses and even for health and beauty treatments. When we opt for taking out a loan to purchase a specific item or service, it is important that we are aware of the specific features of such financing.

There is a type of consumer loan known as a point-of-sale loan (or linked credit), whereby the retailer offers the customer the possibility of financing a purchase through an associated bank. 

If the customer is interested in taking out the loan, she or he will enter into a formal agreement. The paperwork is usually dealt with at the point of sale, without the need to make a trip to the bank, but the purchase may depend on whether the loan application is approved. If it is refused, the consumer cannot be required to pay for the item or service.

However, despite the particularities of these loans, certain obligations still apply and should not be overlooked, such as assessing the consumer’s creditworthiness, properly explaining the transaction involved and providing the pre-contractual information (known as the “European standardised information sheet on consumer credit”) in advance. 

An important aspect is that the consumer not only has the right to withdraw from the agreed purchase but can also withdraw from the loan agreement without any penalty fee, even if the agreement has already been signed. In any event, it is important to note that the right of withdrawal does not apply to all products and the period for doing so is within 14 calendar days. 

But what happens if the retailer does not keep its side of the bargain and fails to deliver the television set you had bought or the treatment you had requested? What happens with the loan you took out solely to finance something you couldn’t afford at the time?  If the retailer breaches such an agreement (if the item or service is not delivered, is faulty or does not meet the agreed criteria), the consumer may cancel the purchase and the related loan, provided that the following conditions are met:

• That the items or services purchased under the contract fail to be delivered/lent in full or in part, or do not meet the agreed criteria.
• That the consumer has filed a claim (in or out of court) against the retailer or establishment and has failed to obtain the satisfaction to which she or he is entitled.