When a person wants to cancel or rescind his/her loan agreement, there is certain procedure one must follow. The procedure to rescind a loan agreement is outlined below.
1.On day zero, the applicant signs the loan document with the creditor. On the same day, he is provided with the Truth in Lending disclosure by the lender where all the terms and conditions involved in the credit contract are disclosed to the borrower including the annual percentage rate, finance charges, loan amount, total number of payments, payment schedule and penalty charges in case of prepayment of loan. Apart from this, the applicant would also receive two copies of a notice that explains the right to rescind. Now, the borrower has the right to cancel the loan agreement within 3 business days of signing the documents. One should note that Sunday is never considered as a business day.
2.In case the borrower wants to rescind his loan agreement, the same must be notified to the creditor within 3 days by writing a request letter to notify the lender about the cancellation of contract. One can even fill the form provided by the creditor and submit it. It is possible to rescind only by making a written application within the stipulated 3 days. One cannot cancel the contract by speaking over a telephone.
3.In case the borrower does not receive any notice of rescission from the lender, the borrower has the right to cancel the agreement at any time. However, rescission must happen during the first 3 years after signing the credit contract or before the borrower puts up the home for sale, whichever situation occurs first.
During these three days of rescission period, it is imperative that the lender must not release funds and disburse them to the concerned parties.
Author: Pauline Go
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