Cancelling linked credit when you return the goods

If you buy something on finance and then send it back, the credit agreement does not always end by itself. A linked credit agreement is a regulated consumer credit agreement that serves exclusively to finance the supply of specific goods or a specific service, where the creditor uses the supplier's services in preparing or making the agreement, or the goods or service are explicitly specified in the agreement¹. In plain terms: the loan exists only to pay for that one thing, and the lender and the retailer worked together to set it up.

That matters because it gives you two separate rights. If you are still inside the 14-day cooling-off period, you can withdraw from the credit agreement itself, whether or not you keep the goods. If you are returning the goods because they are faulty or not as described, the dealer refunds the finance company rather than you directly, and the finance company then terminates your agreement and pays you back your deposit plus any payments you have already made, minus any deductions made for fair usage².

The 14-day withdrawal right comes from the Consumer Credit Act 1974. You must give oral or written notice of the withdrawal to the creditor before the end of the period of 14 days beginning with the day after the relevant day³. Withdrawing does not wipe out the interest that has already built up: you have to repay the amount borrowed along with any interest that has accrued up to the point at which you cancel⁴.

What linked credit is and why it matters when you return goods

A linked credit agreement is defined in the Consumer Credit Act 1974 as a regulated consumer credit agreement which serves exclusively to finance an agreement for the supply of specific goods or the provision of a specific service, and where the creditor uses the services of the supplier in connection with the preparation or making of the credit agreement, or the specific goods or provision of a specific service are explicitly specified in the credit agreement⁸. Both conditions matter. A general personal loan that you happen to spend in a shop is not linked credit. A finance agreement arranged at the till, naming the item, is.

The definition carries an exclusion. It does not apply where the linked credit agreement is entered into by the debtor wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by him⁸. So business borrowing sits outside these rules.

Why it matters: because the credit is tied to the goods, the two agreements rise and fall together in some situations and come apart in others. If you reject the goods, the finance company is the one that has to unwind the deal, not the retailer. If you simply change your mind, the goods return route and the credit withdrawal route are separate, and you may need to use both.

You are most likely to have this kind of link with your credit provider if you have bought something with a credit card, or if the trader provided the goods or service but a separate finance company provided the credit⁹. That second pattern, a retailer plus a separate lender, is the classic linked credit arrangement.

Returning goods under the 14-day cooling-off period ends the credit too

Distance selling has its own cooling-off period, separate from the credit agreement. Your right to cancel an order starts the moment you place your order and does not end until 14 days from the day you receive your goods¹⁰. Because that 14-day period is the time you have to decide whether to cancel, the seller cannot say that you must have returned the goods within this timeframe¹⁰.

If you buy a service online you usually have a 14-day cooling-off period from the day you place your order¹¹. The same broad shape applies.

The two clocks are not identical, and this is where people get caught out. The goods cooling-off period runs from delivery. The credit agreement cooling-off period starts from the day the agreement is concluded or, if later, from when you receive a copy of the agreement⁴. If the paperwork arrives after the goods, the credit clock starts later than the goods clock.

When you cancel the goods purchase inside the cooling-off period, the credit that financed it should be unwound as part of the same transaction. The practical step is to tell both the retailer and the lender in writing, and to keep proof of both. If the retailer handles the refund, ask them to confirm in writing that the finance agreement has been cancelled, and check with the lender that they have received it.

Withdrawing from the credit agreement: 14 days under the Consumer Credit Act

The Consumer Credit Act gives debtors under regulated consumer credit agreements, other than excluded agreements, the right to withdraw. The debtor must give oral or written notice of the withdrawal to the creditor before the end of the period of 14 days beginning with the day after the relevant day³.

There is a second, shorter cooling-off period that applies to some agreements. For agreements signed off trade premises, you have five clear days, not counting the date of receipt, in which to cancel⁴. In addition to that five-day cooling-off period, you have a 14-day cooling-off period in which to change your mind and cancel⁴. The Consumer Credit (Disclosure of Information) Regulations 2010 confirm the shape of the right: the consumer will have the right to withdraw from a credit agreement within 14 days but not to return the goods in the cooling-off period¹².

That last point is important and often misunderstood. The withdrawal right is a right to withdraw from the credit, not a right to hand the goods back. If you want to return the goods, you need a separate ground for doing so, such as the distance selling cooling-off period, a fault, or the retailer's own returns policy.

Some agreements are excluded from the withdrawal right altogether. The exclusions include an agreement for credit exceeding £60,260, other than a residential renovation agreement; an agreement secured on land; a restricted-use credit agreement to finance the purchase of land; and an agreement for a bridging loan in connection with the purchase of land⁶.

Keeping the goods but withdrawing from the credit

You can withdraw from the credit agreement and keep the goods, provided you have the money to settle what you owe. This is not a loophole: withdrawing means repaying the credit provided plus the interest accrued on it at the rate provided for under the agreement⁶.

The effect on ownership depends on the type of agreement. Under the withdrawal rules, where the agreement is a conditional sale, hire-purchase or credit-sale agreement and credit has been provided and the sum payable is paid in full, title to the goods purchased or supplied under the agreement is to pass to the debtor on the same terms as would have applied had the debtor not withdrawn from the agreement⁶. In other words, paying off the credit in full on withdrawal leaves you owning the goods exactly as you would have done under the original deal.

If you cannot pay the balance in full, withdrawing is not a way to keep the goods for free. The credit still has to be repaid, and the lender can pursue it.

There is a separate protection for hire purchase that matters if the lender tries to take goods back. Under the rules on retaking protected goods, the creditor may not take back the goods against the debtor's wishes unless he gets a court order, where the debtor has paid at least one-third of the total amount payable, or any installation charge plus one-third of the rest¹³. If the creditor does take them without your consent or a court order, you have the right to get back all the money you have paid under the agreement¹³.

What you pay back and when

On withdrawal, the debtor must repay to the creditor any credit provided and the interest accrued on it at the rate provided for under the agreement⁶. Interest runs only to the date of cancellation, not for the whole term. That is the difference between withdrawing and simply stopping payments.

Where the creditor terminates a hire purchase agreement instead, the sum works differently. You will usually have to pay the full amount owed on the original hire purchase agreement minus what you have paid and minus the amount the creditor gets back from selling the goods. The option to purchase fee is also deducted¹⁴.

A worked example of the withdrawal rule: a lender's own product terms state that even after a loan is approved, you have 14 days to withdraw from your credit agreement, and you must return the borrowed money plus accrued daily interest¹⁶. The principle is the same across regulated agreements.

If you have already made payments and then withdraw, the arithmetic is a settlement rather than a fresh loan. If you are unsure what figure the lender is asking for, ask for it in writing and check it against the agreement.

If the lender or retailer won't cancel: complaints and the Financial Ombudsman

Start with the firm. If you are unhappy with the lender's response, you can make a complaint to the Financial Ombudsman Service⁷. The ombudsman is free to consumers and its decisions bind the firm.

Where a complaint is about goods not received or not as described, the ombudsman usually considers evidence about the goods or services, such as the seller's original description, and whether the goods or services were significantly different from the description¹⁷. Keep the listing, the photographs and any correspondence.

If the complaint is about a credit broker's fee, the ombudsman will generally ask a credit broker to refund some or all of the fee if the consumer contacted the broker to ask for a refund because they did not want the loan, the fees were not made clear, or the consumer did not authorise payment of the fee¹⁸. Credit brokers should not refuse to refund the fee, or wait 6 months to refund it: any refund should be carried out swiftly if it is clear the consumer would not be taking out a loan¹⁸.

Where a lender should have realised that further lending was clearly unsustainable, the ombudsman is likely to tell the lender to get the entries removed from the customer's credit file completely¹⁹. If a complaint is upheld, the ombudsman may ask the business to make changes to a product or account, pay compensation for financial loss, make changes to a credit file, or do things differently for the customer in future, and may also ask it to compensate the consumer for distress or inconvenience²⁰.

For buy now pay later, the position is different in one respect. You can start a chargeback claim with the credit card provider that you are using to make payments to your buy now pay later account, for purchases made before 15 July 2026²¹. Section 75 of the Consumer Credit Act is available on deferred payment credit agreements, so you may be able to get a refund from the lender if something goes wrong with what you have bought⁷.

Where the protection stops

The withdrawal right has hard edges. It does not apply to excluded agreements, including credit exceeding £60,260 other than a residential renovation agreement, agreements secured on land, restricted-use credit to finance the purchase of land, and bridging loans connected to buying land⁶. It does not give you a right to return the goods¹². And it does not remove the interest that has already accrued⁶.

The linked credit definition itself excludes business borrowing: it does not apply where the agreement is entered into wholly or predominantly for the purposes of a business⁸. The Consumer Credit Act also excludes agreements whose purpose is the acquisition or retention of property rights in land or in an existing or projected building²³.

On credit files, the picture is mixed and worth stating plainly. A voluntary termination of car finance, unlike a voluntary surrender as part of a repossession process, will not lead to any negative markers on your credit report²⁴. But if you were to terminate car finance agreements regularly, this may lead to an element of damage to how prospective lenders view you²⁴. And your credit file will be affected any time you pay less than what you agreed to when you took out the debt²⁵.

If a firm has set off a debt against a consumer's subsistence balance or protected money, it should refund the sum debited unless it is fair not to do so, and if it does not refund it, it should be able to justify that it is fair not to do so and consider other remedial action²⁶.