Affordability checks exists to ensure that a person can afford to pay back a loan without compromising too much on other costs that person will need to meet throughout the month. Lenders will ask a person’s income and outgoings information to be given so that they are able to make the checks. A decision will be made involving these checks on whether they will lend the money or not.
Annual Equivalent Rate (AER)
AER is there to help you compare the amounts that would be earned from different savings accounts or investments over a year.
Annual Percentage Rate (APR)
The term APR, also known as nominal APR, or sometimes as an effective APR, is the annual interest rate. Meaning it is the interest rate for a whole year, rather than just a monthly rate which is applied to as an additional fee on paying back a loan, or credit card. It is the cost of borrowing the loan and is often used to compare different loan and credit offers. A person will be made aware of the APR before agreeing to the loan, which varies from lenders to lender.
An amount charged by the lender as a fee for arranging the credit (loan), which usually covers the administration costs. This can sometimes be called a competition fee or a booking fee. Most commonly found when applying for mortgages, business loans or car finance.
Arrears is a legal term for the part of a debt that is overdue after missing one or more required payments. The amount of the arrears is the amount accrued from the date on which the first missed payment was due.
This refers to a person’s history with regards to not meeting the payment of bills on time. This can also include the likelihood that the failure to meet these bills in future will continue. This data is often reflected in a credit score, and failure to meet those repayments will result in a low credit score. If someone has previously had experience with ‘bad credit’, then it will likely flag up when an organisation makes a check on your credit.
Balance transfers take place when one existing debt from one credit card provider is moved to another. This action helps a person take control of their debts by reducing the number of the repayments they need to make, and often reduces their interest rate. Fees can occur when transferring and can be added to the balance.
Bankers Automated Clearing Services (BACS)
BACS involve the use of an electronic system which makes payments from one bank account to another, mainly used for direct debits and direct credits from organisations. Payments can take up to three working days to clear.
Bank of England Base Rate
It’s the rate the Bank of England charges other banks and other lenders when they borrow money, and it’s currently 0.10%. The base rate influences the interest rates that many lenders charge for mortgages, loans and other types of credit they offer people.
Bankruptcy is a legal process through which people or other bodies who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is enforced by a court order, often initiated by the debtor.
A bank transfer is the movement of money 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. Also, you could choose to pay for goods or services from your bank account via bank transfer. This method of moving money from a bank account is usually fast and free and safer than withdrawing and paying in cash.
CCJ (County Court Judgement)
CCJ stands for County Court Judgement. It’s a court order that can be listed against you if you don’t pay back money that you owe to a lender or service provider. There are many different reasons why you could receive a CCJ, such as failure to pay penalties for parking tickets, not paying utility bills or for defaulting on credit card bills. The CCJ is likely to appear on your credit history and it will have a negative effect on your credit score.
The term refers to an asset that a lender holds as security for a loan you may take out with them. This can usually be your house, land or even a car. The purpose of this is so the lender can recover the amount they lent you by selling your assets if you are unable to meet your repayments. The lender if securing the money lent to you, by having the collateral act as a form of protection for the lender.
This is the action of a borrower taking all their smaller loans, possibly different credit card balances and putting them all into one new bigger loan, resulting in reducing monthly payments and making repayments more manageable.
Cooling Off Period
The cooling off period lets you cancel orders and contacts if you change your mind, and this is usually a time period of 14 days.
The credit agreement is a written agreement between the finance company and the customer, where the customer agrees to buy goods, and repay to the lender the amount of money borrowed in order to buy the goods specified, such as a car for example.
A company will look at information from your credit report to understand your financial behaviour. An organisation does not always need consent to do this, but they must have a legitimate reason to do so, it would most likely happen if you have a applied for a loan with them.
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 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 put this information into a credit report. Its then calculated to create a credit score for you based on the information within your credit report. Lenders will ask one, maybe more of the three credit reference agencies for information about you before accepting or declining an application for a loan.
A credit score helps lenders to decide whether a person is likely to meet the financial commitment to them. It’s a bit like ‘scoring points’ for repaying on time and in full. It’s important to understand that your score is not just focussed on repayments, it also includes factors such as whether you are using credit responsibly.
A credit union, a financial cooperative, owned by its members, which is controlled and operated on the principle of ‘people helping people’. Credit unions provide credit at a competitive rate and savings accounts to its members.
The Data Protection Act controls how personal/customer information is used by organisations or by government bodies.
The term delinquency commonly refers to a situation where a borrower is late or overdue on a payment, such as a mortgage repayment, a car loan, or a credit card account.
Direct Debit is an instruction from you to your bank or building society that authorises the organisation you want to pay to collect the sum amounts from your account, this is arranged by giving notice of the amounts and dates of collection.
When money is deposited with a credit union, you become a member. The credit union may pay dividends back to you on the amount you have saved, which is produced from the profit made by the credit union in which the company shares with its shareholders (members).
Early Repayment Charges (ERCs)
This is a fee to you mortgage lender, which can be paid to reduce the amount you have borrowed, usually this is paid in a lump sum. When paying an amount earlier than due, you are breaking the deal made, so the lender uses the fee to make up some of the interest the lender is losing out on.
This is the ownership of assets that may have debts attached to them, for example, it’s the difference between the value of your home, and the outstanding balance of everything still to be paid. It is measure for accounting purposes by subtracting liabilities from the value of an asset. Equity can be negative too, which can mean the asset is worth less than the sum secured on it.
Financial Conduct Authority (FCA)
The Financial Conduct Authority is a financial regulatory body in the United Kingdom, but operates independently of the UK Government, and is financed by charging fees to members of the financial services industry.
Financial Ombudsman Service (FOS)
The FOS is an regulator in the United Kingdom. It was established in 2000, and given statutory powers in 2001 by the Financial Services and Markets Act 2000, to help settle disputes between consumers and UK-based businesses providing financial services, such as banks, building societies, insurance companies, investment firms, financial advisers and finance companies.
Financial Services Compensation Scheme (FSCS)
The FSCS is the UK’s statutory Deposit insurance and investors compensation scheme for customers of authorised financial services firms. This means that FSCS can pay compensation if a firm is unable, or likely to be unable, to pay claims against it. Protection is covered up to £85,000.
Fixed / Variable Rate
This 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.
This is the income of the sum of all wages, salaries, profits, interest payments, rents, and other forms of earnings, before any deductions or taxes. It is opposed to net income, defined as the gross income minus taxes and other deductions.
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. 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.
An income tax is a tax imposed on individuals or entities that varies with respective income or profits. Income tax generally is computed as the product of a tax rate times taxable income. Taxation rates may vary by type or characteristics of the taxpayer. The tax rate may increase as taxable income increases.
Interest is what a person is charged for borrowing money, or the amount a person will 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).
Individual Savings Account (ISA)
An ISA enables you to save or invest money without paying tax on the interest you will receive in return. Each year, an allowance is given for the ISA, with the allowance to 2020/2021 being £20,000, which can be put into a number of different ISA’s.
Individual Voluntary Arrangement (IVA)
An IVA is an agreement with your creditors to pay all or part of your debts. It means that you will agree to make regular payments to an insolvency practitioner, who will divide this money between your creditors. An IVA can help give a person more control of your assets than declaring a bankruptcy.
An individual or an organisation which lends money.
A Lifetime Individual Savings Account (LISA) is a type of Individual Savings Account (ISA) that can be used to help save for a home, retirement, or both – with a bonus of up to £1000 per year from the government until you reach the age of 50.
A mortgage is a loan taken out to buy a home or land. The loan is secured against the value of the home/land until it is paid off. A mortgage is a type of secured loan, which means that if payments are not met, then the lender can take your house or land and sell it to recoup their money back.
Open banking is a financial technology referred to by a financial services organisation which refers to the use of open application programming interface. This means that third party developers can build applications and services around the financial institution, which include better financial transparency options for account holders ranging from open data to private data.
An overdraft arises when money is withdrawn from a bank account and the available balance goes below zero. In this instance the account is said to be “overdrawn”.
This refers to an amount of money that is taken by an employer from an employee’s pay, for example, income tax and PAYE are all taken by payroll deduction.
Unsecured loans are loans that are not backed by collateral and typically have higher interest rates than secured loans.
Prudential Regulation Authority (PRA)
The PRA is a United Kingdom financial services regulatory body, formed as one of the successors to the Financial Services Authority (FCA). The authority is responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers, and major investment firms.
Also sometimes known as a homeowner loan, second mortgage, or second charge mortgage. A secure loan is supported by collateral, that the lender can possess and sell if the loan is not repaid.
A standing order is an instruction that you give to your bank to pay a specific amount at regular times, such as weekly, monthly, quarterly, or yearly.