Definitions that help make financial lingo easier to understandPublished: June 12, 2018
The jargon buster
Every industry has its own jargon and financial services is no different. But, at Loan.co.uk we avoid it.
We try very hard not to use jargon but sometimes there’s no alternative. So, to make absolutely sure we’re being 100% clear in what we say, we’ve put together this little list of definitions to help you understand the financial world, with a focus on the terms you may come across if you’re considering a loan. If there’s anything you see on our site that you just ‘don’t get’, please let us know and we’ll explain it in plain English.
AER (Annual Equivalent Rate) is designed to help you compare what you would earn from different savings accounts or investments over a year.
To help make sure that you’ll be able to afford to repay your loan without your money being too tight, lenders will ask you to provide information on your income and outgoings.
Annual Percentage Rate (APR)
APR is the annual cost of borrowing over the term of a loan. You can use it to compare different loan and credit offers. The APR takes into account the interest on the loan and other charges that will apply, for example, any arrangement fee. All lenders will tell you what their APR is before you sign up for your loan, which will vary from lender to lender.
An amount charged by the lender for setting up your loan.
If you’ve previously had issues with credit, the chances are that your credit history will flag this up. For example, you’ll have ‘bad credit’ if you’ve had trouble with making repayments in the past.
A Balance transfer takes place when you move existing debt from one credit card provider to another. People often do this to reduce interest payments or help consolidate lots of debts into one more manageable monthly amount.
A bank transfer is when money is sent from one bank account to another. For example, a lender may send the amount you have agreed to borrow via bank transfer to your bank account. Or, you could choose to pay for goods or services (such as to purchase a car or deposit on a property) from your bank account via bank transfer. Transferring money from a bank account is usually fast and free and safer than withdrawing and paying in cash.
The base rate is sometimes called the ‘Bank of England base rate’ or ‘the interest rate’ when it’s reported in the news. The Bank of England’s Monetary Policy Committee (MPC) sets the Bank Rate. It’s part of the Monetary Policy action that the Bank of England can use to aim to meet the target that the Government sets it to keep inflation low and stable.
Bank Rate is the interest rate that the Bank of England pays to commercial banks that hold money for it. It influences the rates those banks charge people to borrow money or pay on their savings.
If the Bank Rate changes, then normally banks change their interest rates on saving and borrowing. But Bank Rate isn’t the only thing that affects interest rates on saving and borrowing. To cover their costs, banks need to pay out less on saving than they make on lending. But they can’t pay less than 0% on savings or people would be reluctant to deposit money with them.
CCJ (County Court Judgement)
CCJ stands for County Court Judgement. It’s a court order that can be registered against you if you don’t pay back money that you owe to a lender or service provider. In Scotland, the process is called ‘enforcing debt by diligence’. There are many different reasons why you could receive a CCJ. For example, if you failed to pay penalties for parking tickets, didn’t pay utility bills or for defaulted on credit card bills you can expect to receive a CCJ. A CCJ is likely to appear on your credit history and it will have a negative affect on your credit score.
If you take out a secured loan, it will be secured against your property (usually land or your home). If you become unable to repay your loan (default on your repayments), you may be forced to sell your property, so the lender may recoup the amount owed.
A fee earned by our team members, and paid by the lenders, for setting up a loan on that lender’s behalf.
A legal term meaning the seven-day period in which you can think about the terms of your loan. By law, we can’t contact you during that time, although you can still contact us if you like.
When a borrower takes lots of existing small loans and credit card debts and rolls them up into one new, larger loan with the objective of reducing monthly repayments.
The written arrangement made between the borrower and the lender. It’s a legal contract in which your lender agrees to loan you a certain amount of money for a specified amount of time. It outlines all the rules and regulations associated with the contract, including the interest to be paid.
Lenders will ask a credit reference agency (CRA) to look into your credit history and your track record for making loan and credit repayments. They use the information they get from that agency to give you a credit score.
Credit rating / score
A credit score helps lenders to decide whether you’re likely to meet your financial commitment to them. It’s a bit like getting a grade for repaying on time and in full. Note that your score is not just focussed on repayments, it also includes factors such as whether you’re using credit responsibly.
Credit Reference Agency (CRA)
There are three credit reference agencies (CRAs) in the UK; Equifax. Experian and TransUnion (previously known as Callcredit). The CRAs are companies that create and hold your credit report.
Credit Reference Agencies (see above) gather information about your credit history and place this into a credit report. They calculate a credit score for you based on the information within your credit report. Lenders will ask one or more of the three credit reference agencies for information about you before accepting or declining an application for credit from you.
The Data Protection Act controls how personal/customer information is used by organisations or by government bodies.
If you borrow enough money to pay off all your existing debt, including loans and credit card balances, you take out a debt consolidation loan. This enables you to put everything you owe into one simple-to-manage package.
Direct Debit is an instruction from you to your bank or building society that authorises the organisation you want to pay to collect varying amounts from your account, so long as you’ve been given advanced notice of the amounts and dates of collection.
Early Repayment Charges (ERCs)
Most mortgage products include within the small print a Mortgage Early Repayment Charge (ERC) that’s payable if you repay your mortgage within a certain time frame known as the early repayment charge period. This is usually related to an incentive period such as a fixed rate of two, three or five years. If an ERC applies to your particular mortgage, if you repay it in part or in full during this period, the mortgage lender will charge you an early repayment charge.
The charge can be significant which can leave you feeling locked-in to your current mortgage, but Loan.co.uk will be able to explain your options if this situation arises.
The ERC varies depending on your mortgage product.
The difference between the home’s fair market value and the outstanding balance of everything still to be paid. Positive equity means the value exceeds the balance. Negative equity means the home is worth less than the sum secured on it.
Fixed rate / variable rate
Refers to how interest is charged. For example, a fixed rate mortgage won’t vary over a specified amount of time. But a variable rate mortgage may change, either up or down. Many fixed rate mortgages have a fixed rate period to start with, but after a pre-agreed period revert to a variable rate.
Guarantor (for a ‘guarantor’ loan)
A guarantor is someone who agrees to repay a loan if the main borrower can’t. The guarantor could be a good friend, a close family member or a colleague from where you work, but they can’t be linked to you financially so they can’t be your wife/husband. The guarantor usually has to be 21 or older, have a good credit record and they may need to be a homeowner.
A guarantor loan is a type of unsecured loan that needs the borrower to have a second person to act as a guarantor for the loan. The loan term (period of time you can pay it back over) is usually anywhere between one to seven years and you may be able to borrow from £500 to £15,000. A guarantor loan can be a suitable option if you’re struggling to get approved for a personal loan because you’re suffering from ‘bad credit’. The guarantor needs to agree to repay the loan if the borrower becomes unable to do so.
Guideline / tailored quote
When you first look into borrowing with us, we give you a guideline quote, so you have a rough idea of how much your repayments would be. When you decide you want to proceed, we’ll issue a tailored quote that takes into account more of your personal circumstances, so you will have a much closer guide to the actual figure you’ll pay.
Interest is what you’re charged for borrowing money, or the reward you receive for saving from a bank or building society. It’s expressed as a percentage.
The interest rate is the amount charged (expressed as a percentage) by a lender to a borrower for the use of a loan. Interest rates are typically worked out for a loan on an annual basis, known as the annual percentage rate (APR).
ISA stands for Individual Savings Account. An ISA enables you to save or invest money without paying tax on the interest on the returns you receive. To open an ISA, you need to be a UK resident for tax purposes and aged 16 or over. For some ISAs, you may need to be 18 or over.
The banks or other financial institutions providing the loans.
A mortgage is a loan taken out to buy a home or land. Most run for 25 years but the term (the length of the loan) can be shorter or longer. The loan is secured against the value of the home/land until it’s paid off. Because a mortgage is a type of secured loan, if you don’t keep up your repayments the lender can take back the home and sell it to attempt to get their money back.
Mortgages can be legal or equitable.
- Mortgage by demise – the lender becomes the owner of the mortgaged property until the loan is repaid and any other mortgage obligations are carried through.
- Mortgage by legal charge – the borrower is the legal owner of the property, but the creditor gains sufficient rights over it, such as a right to take possession of the property or sell it.
- Equitable mortgage is in which the lender is secured by taking possession of all the original title documents of the property that serves as security for the mortgage. This gives the lender the right to foreclose on the property, sell it, or appoint a receiver in case of nonpayment.
An arranged or authorised overdraft is a credit facility that has been agreed with your bank. It enables you to borrow up to a pre-set overdraft limit when you need to dip into it.
Unsecured loans are loans that are not backed by collateral and typically have higher interest rates than secured loans. See ‘unsecured loans’.
The agreed number of months or years over which the loan is to be repaid.
Second mortgage / debt
A loan or debt guaranteed by the value of the borrower’s home or other property. The borrower agrees that their home or other property may be sold to pay any debt they are unable to repay by other means.
Second mortgage credit agreement
The written arrangement made between the borrower and the lender.
Secured loan (sometimes known as homeowner loan, second mortgage or second charge mortgage)
Secured loans are loans that are backed by collateral (typically property, such as a house) that the lender can possess and sell if the loan is not repaid. They usually have lower interest rates than unsecured loans because the loan is less of a risk for the lender because of the collateral. Types of secured loans include: mortgages, secured personal loans and home equity loans.
Secured loans are a good loan option for anyone looking to borrow a significant money if they have a poor credit rating or are self-employed. Secured loans are typically easer to be approved for because they’re less risk for the lender. You can usually borrow more money with a secured loan than with an unsecured loan, and usually over a longer repayment period.
Property that a borrower agrees to use to back their loan arrangement. The borrower may have to sell this property if he or she can’t make repayments on the loan.
A standing order is an instruction that you give to your bank to pay a fixed amount at regular intervals (weekly, monthly, quarterly or yearly).
Unsecured (personal) loans
Loans that don’t require the borrower to offer security/collateral, usually for smaller amounts and over shorter timescales than second mortgages/secured loans/homeowner loans.