Consumer loans are intended to finance various current needs – repairs, purchase of goods and services, travel, education, covering expenses, etc. Their granting is regulated by the Consumer Credit Act (CCA). It regulates various types of consumer loans for individuals, including overdraft credit, commodity loans, financial leasing.

This type of loan can improve your standard of living, but it must be used wisely, and taking on new debt must be in line with your overall level of indebtedness. Equally important is an informed and well-considered choice of a credit product. A prerequisite for this is that you are familiar with the characteristics and parameters of the different types of products, your rights and obligations as a borrower, and other key aspects related to granting and managing a loan.

Choosing a consumer loan. Standard European Form

When choosing a credit product, it is important to review different market offers. In order to be able to make an objective comparison of the offers, their indicators must be presented in a form that facilitates their comparison. For this purpose, creditors (and/or credit intermediaries) must provide you with the necessary information in a standardized form – the so-called Standard European Form (standard European form with information on consumer credit[1]). It contains the main parameters of the loan: type of loan, total amount, term, currency, amount and type of interest rate – fixed and/or variable, indication of its formation method, annual percentage rate of charge (APR), form of collateral – if required, total amount due, terms of granting and repayment, costs related to the loan, conditions in case of default, etc. It is mandatory to provide information about the creditor and/or credit intermediary.

Along with this, the Standard European Form reflects the specifics of the different types of consumer loans. It contains information about the specifics of the specific credit product – for example, whether collateral or insurance is required, what are the costs of using a certain payment instrument (e.g. credit card), what are the methods of borrowing and repaying the loan, etc.

This ensures that the consumer receives a complete and transparent picture of the terms of the loan, which allows him to make an informed and justified choice, consistent with his financial capabilities and needs. This is key to avoiding unwanted financial difficulties and to protecting your interests as a consumer.

Applying for a consumer loan and concluding a loan agreement

When applying for a consumer loan, you must provide true, complete and accurate information about your financial situation, supported by the necessary documents proving the amount and source of your income. In turn, the lender assesses your creditworthiness to assess whether you are able to fully and regularly service your obligations. In addition to checking your income, it also checks the Central Credit Register at the Bulgarian National Bank, which contains information about all your credit obligations and the way you service them. Other factors related to creditworthiness may also be taken into account. Keep in mind that the creditor may not approve your application.

Upon approval, a credit agreement is signed. It contains detailed information about both parties to the contract, the parameters of the loan, the terms of use and repayment, the repayment plan, fees, commissions and additional costs, as well as the rights of the consumer – including the possibility of early repayment, the right of withdrawal, measures in case of default and the availability of out-of-court dispute resolution. Some of the charges are included in the APR, but others are not – such as notary fees; fees for maintaining a payment account in connection with the consumer credit agreement; costs that the consumer pays in the event of non-fulfillment of his obligations under the credit agreement. Check carefully which costs are reported in the APR when comparing offers.

Before signing the contract, you should carefully familiarize yourself with all the details of it. Do not hesitate to ask the creditor for clarification on any question that is unclear to you.

Option to cancel a consumer credit agreement

Even if you have signed the credit agreement and received the funds, you have the right to cancel it within 14 days from the date of its conclusion. You must notify your creditor of this and within 30 days pay back the principal amount received together with the interest accrued for the period from receiving the credit to its return. This legal option gives you a chance to reflect on the financial commitment you have made and protect yourself from potential difficulties in servicing it.

Early repayment

You can make an early repayment of the credit in whole or in part, and you do not owe compensation or penalty for this, if the credit has a variable interest rate or is in the form of an overdraft. In the case of loans with a fixed interest rate, such compensation may be required, the amount and conditions of which are determined by law.

The scope of the Consumer Credit Act includes commonly used credit products such as overdrafts, credit cards, so-called "quick loans", commodity loans, and financial leasing. All of them are subject to legal requirements, including those for the prior provision of clear and detailed information about the product in a standardized form. Their characteristics are presented in article "Other consumer loans".

Useful links

Bulgarian National Bank

Consumer Credit Act

Central Credit Register