Borrowing from your bank or credit union can get you lower rates and speed up the application process. But most borrowers don’t know that these same financial institutions can seize money from your accounts if you miss a payment. Luckily, there are restrictions on what types of funds it can seize \u2014 and easy ways to avoid signing a contract with a right to offset clause.<\/p>
A right to offset clause means a bank or credit union can take money from your accounts held at that same institution to cover missed loan repayments. It’s also known as a right to set off (or right of set-off) clause.<\/p>
It’s a clause in a loan contract, but only if you currently have a deposit account at that same bank or credit union \u2014 like a chequing or savings account. Generally, lenders include a right to offset clause in contracts when they think there’s a risk you’ll default on the loan.<\/p>
If your loan becomes delinquent \u2014 which may happen around 30 days after missing a payment (policies may vary between institutions) \u2014 a bank or credit union withdraws the amount you owe from another account that it holds. Typically, it doesn’t have to give any notice or get your permission.
In Canada, there aren’t many limits to lenders’ right to offset. However, the following rules apply:<\/p>
If you find yourself behind on a loan payment from your bank or credit union, speak to a lawyer near you to find out more about how the right to offset applies to your circumstances. Check out the Government of Canada website<\/a> to read more about how the right of offset works. A right to offset can make a bad financial situation worse. If you have a financial emergency and can’t afford your monthly bills, the right to offset makes sure that your loan gets paid off no matter what.<\/p> This means you might not have money to cover the basics, like gas, utilities, rent or groceries. In the most extreme cases, you could end up having to take out an expensive short-term loan just to get by. This can trigger a cycle of debt<\/a>, especially if you need extra money each month.<\/p> There are a few ways to avoid a right to offset:<\/p> Take these steps if you find your lender took money from your bank account to cover your loan payment:<\/p> Banks and credit unions usually only use the right to offset clause as a last resort. But it can set you up to fall into even more debt when you’re already struggling with repayments. Find out more about how loans work \u2014 and compare lenders that aren’t your bank \u2014 by reading our guide to personal loans<\/a>.<\/p>How can it affect me?<\/h3>
How do I avoid a right to offset?<\/h3>
What can I do if a lender withdrew funds from my account?<\/h3>
Bottom line<\/h3>
Frequently asked questions<\/h3>
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