Cooling off periods

Under current legislation certain new agreements for financial services and products have a mandatory cooling off period. Other goods and services may also have voluntary cooling off periods where the providers have independently decided to offer this feature. Find out more by reading our guide to the consumer credit act.

This guide will give you a basic understanding about what cooling off periods are and what sort of financial products and services are covered by this legislation.

As the name suggests, a “cooling off” period is a fixed length of time which, after signing a contract, you can cancel an agreement without incurring a penalty.

It is designed to give consumers the right in law to reconsider taking out a financial product. You are not obliged to give any reason for withdrawing but these can include finding a better deal elsewhere or simply changing your mind.

Normally you will have the right to cancel within a set period, say 14 days from the date you signed a credit agreement. After this time, you do not have the automatic right to cancel and the provider may hold you to an agreement or be entitled to levy extra fees or charges for withdrawing from the agreement.

Some providers may offer a longer cooling off period that the minimum dictated by the law. Other providers may not be obliged to offer a cooling off period but do so as good business practice and for the peace of mind of their customers.

Remember that if you decide to cancel an agreement during a cooling off period you will have to return any monies loaned or repay any purchases, cash advances or money transfers you have made on a credit card. If you are purchasing goods with the finance (such as a car) then you must return them immediately.

Yes, the legislation states that you have the right to cancel any credit agreement taken out ‘at a distance’ – i.e. by telephone, online or at a pop-up location – within 14 days of signing the agreement.

Several products have a minimum cooling period built in when you take out an agreement. Providers may offer longer cooling off periods than those given below but they cannot be less than these minimums.

There is no official cooling off period. Bearing in mind it can take many weeks from signing an agreement to its completion, you can choose to cancel at any time before the final transfer of funds. However, if any other parties have incurred costs, such as administrative fees, you may be asked to repay these. Also, if you have exchanged contracts on a property purchase you are legally obliged to continue with the purchase.

As with mortgages there is no cooling off period enshrined in law. However, individual companies may offer these voluntarily. In addition, it often takes many weeks from signing an agreement to the release of funds, enabling a consumer to cancel if they have second thoughts. Once again, there may be administrative fees or charges associated with this so be careful to check your agreement carefully before signing.

There is a 14-day cancellation right for new accounts. However, if you have run up any debt associated with that account (such as an overdraft) then this must be repaid in full before closure.

If you are switching banks using the switching service you have the right to cancel up to seven working days prior to the switch date. After this you must wait for the switch to complete before cancelling your new bank or current account.

Easy access – 14 day cancellation period applies to variable rate accounts.Cash ISAs - 14 day cooling off period regardless of how the ISA was taken out and also applies to fixed rate ISAs

Stocks & Shares ISAS - 14 days but only if you bought this following advice or at a distance (such as over the telephone or online). If your investment has fallen in value you will not get back your initial investment.

Fixed rate bonds - No cooling off period in law but individual banks and building societies may offer this voluntarily. After this some fixed bonds allow for early withdrawal on closure only but this will often result in a penalty fee involving loss of interest. Some fixed rate bonds offer no access or closure until the fixed period has ended.

Notice accounts – Variable rate accounts including notice accounts have a 14-day cancellation right. Loans, credit cards and finance agreements – You have the right to withdraw from any credit agreement within 14 days of acceptance or when you receive a copy of the agreement if later, where the agreement was arranged by phone, by post or online.

Others – Other products and services covered by the cooling off period legislation include insurance policies such as life insurance, critical illness cover and general insurance, as well as pensions, annuities, overdrafts and store cards.