A guide to many of the terms used in the consumer finance market.
One
Acceptance rate – The percentage of customers who are successful in applying for a loan or credit card. 66% or more applicants must be offered the advertised price known as the typical APR (see “Typical APR” below).
Annual Percentage Rate of Charge (APR) – The interest rate to be paid annually on the loan or credit card balance. This allows potential customers to compare lenders. Under the Consumer Credit Act, lenders are required by law to disclose their APR.
Residue – Missed payments for a loan, credit card, mortgage, or most types of debt are called arrears. The borrower is legally obliged to settle any arrears as quickly as possible.
Handling charge – Usually for the administrative costs of setting up a mortgage.
B
Basic rate – The interest rate set by the Bank of England. This is the interest rate charged to banks for Bank of England lending. The base rate and how it may change in the future has a direct impact on the interest rate a bank can charge the consumer on a loan or mortgage.
Business loans – A loan specifically intended for a company and generally based on the past and probable future performance of the company.
C
Car loan – A loan specifically for the purchase of a car.
Consumer Credit Association (CCA) – Represents most companies in the consumer credit industry. Government, local authorities, financial institutions, financial-oriented media and consumer groups are all members. Members sign a constitution and must follow a code of conduct and business conduct.
Judgment of the District Court (CCJ) – A CCJ can be issued by a district court to a person who has failed to pay outstanding debts. A CCJ adversely affects a person’s creditworthiness and can potentially result in them being denied credit. A CCJ will remain on a credit score for 6 years. It is possible to avoid this big negative stain on your credit file by fully billing the CCJ within a month of receipt, in which case no details of the CCJ will be stored in your credit file.
Credit crunch – A situation where lenders restrict their lending at the same time, usually due to the shared fear that borrowers will not be able to repay their debts.
Credit file – Information stored by credit reference agencies such as Experian, Equifax and CallCredit through credit and credit agreements of individuals. The loan file is reviewed when lenders consider a loan application.
Credit reference agencies – Companies that keep records of credit and credit agreements, amounts owed, with whom and payments made, including any defaults, CCJs, arrears, etc.
Loan search – The general search that the lender performs at the credit reference agencies.
D
Debt consolidation – The transfer of multiple debts to a single debt via a loan or credit card.
Default – If a regular debt repayment is missed. A payment default is recorded in an individual loan file and has a detrimental effect on the chances of success of future loan applications.
Privacy – A Law of Parliament from 1998 and the main laws governing the use of personal data in the United Kingdom. Lenders are not permitted to disclose a person’s personal data directly to other institutions or companies.
E
Early return fee – A fee charged by lenders when a borrower repays their debts before the agreed debt term is reached.
Equity – The value of a property over a loan, a mortgage orhe has other debts. The amount of money a person receives when they sell their property and fully repay the debts on the property.
F
Financial Conduct Authority (FCA) – The institution appointed by the government responsible for regulating the financial market.
First load – The mortgage on a property. A lender who has the first charge on a property has priority for repaying their mortgage or loan from the funds available after the sale of a property.
Fixed interest rate – An interest rate that will not change.
H
Homeowner Loan – Also commonly known as a secured loan. A homeowner loan is only available to people who own their own home. The loan is secured against the value of the property usually in the form of a second fee on the property.
I
Installment loans – Multiple loan repayments spread over a certain period of time. Depending on the lender, there may be flexibility in repayment amounts and schedule.
J
Joint application – A loan or other loan application made by a couple and not by a single person, such as husband and wife.
L
Lender – The company that provides the loan or mortgage.
Purpose of the loan – The purpose for which the loan was acquired.
Loan term – The period over which the loan is repaid.
Loan To Value (LTV) – Generally associated with a mortgage and in the form of a percentage. This is the loan amount in proportion to the full value of the property. for example, a person may be offered a 90% LTV mortgage on a property worth £100,000. In this case, the offer would be £90,000.
M
Monthly repayments – The monthly payments made to settle a loan, including any interest.
Mortgage – A loan taken out specifically to finance the purchase of a property, in most cases a home. The property is offered to the lender as collateral.
O
Online Loans – Although most loans are available online. The Internet has enabled the development of a technology that allows for faster processing of a loan application than traditional methods. In some cases, a loan application, agreement, and the funds appearing in your account may take as little as 15 minutes or less.
P
Credit – A short-term cash advance of up to 31 days, which is refundable on your next payday. Payday loans are associated with a high APR due to the shorter term of the loan.
Payment Protection Insurance (PPI) – Insurance to cover debt repayment in the event that the borrower is unable to maintain his repayments for a number of reasons, including dismissal, illness or accident.
Personal loans – A general loan for each purpose and in different amounts that can be provided to a person based on their credit history.
Price for risk – Lenders now have a set of interest rates that are selected based on an individual credit score. A person with a poor credit score is considered a high risk and is likely to receive a higher interest rate because the lender takes into account the possibility that they will default on their repayments. Conversely, a person with a high credit score and a good credit history is considered a low risk and receives a lower interest rate.
Q
Eligibility criteria – The eligibility requirements required by the lender. The most basic criteria required to qualify for a loan in the UK are; Permanent residence in the UK, age 18 or older and a regular income. Many lenders can also specify additional loan terms.
R
Regulated – Financial products supervised by the Financial Conduct Authority (FCA). Lenders must follow a code of conduct and individuals willen protected by the Financial Services Compensation Scheme (FSCS).
Amortization schedule – The period over which a loan is repaid and the details of the loan repayment amounts.
S
Second charge – A second loan, in addition to any other loan secured against individual property.
Secured loan – Also known as Homeowner Loan. A secured loan is only available to homeowners. The loan amount is secured against the value of the property. The lender has the right to repossess your property if you do not maintain the loan repayments.
Joint ownership – An agreement where a person owns only a percentage of the property. The remaining percentage is owned by a third party, often a housing association. The person can have a mortgage on the part of the property they own and pay rent for the part of the property they don’t own.
T
Total refundable amount – The total amount of the loan plus interest and any fees incurred.
Typical APR – The advertised interest rate offered to at least 66% of successful loan applicants.
U
Underwriting – The process of reviewing data and approving a loan.
Unregulated – Not covered and regulated by the Financial Conduct Authority (FCA).
Unsecured loan – A loan that does not require collateral and is granted in “good faith”. Under the conviction of the lenders that you can repay the loan based on your creditworthiness, credit history and financial performance, among other things.
V
Floating rate – An interest rate that changes during the loan repayment period.
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Wendy is now a financial analyst and writer. Wendy has been writing about finance and personal finance since she was a sophomore in high school. She has also been writing for several online publications and published in The Huffington Post, and Forbes Woman.
Wendy is a credentialed financial analyst and has experience working with financial institutions and businesses. Wendy is also a certified financial planner. When Wendy's not writing, she enjoys tending to her many plants, watching TV, and spending time with her family.
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