A guide to many of the terms used in the consumer finance market.

TO

Acceptance level – The percentage of clients who are successful in applying for a loan or credit card. Applicants of 66% or more must be offered the advertised rate known as a typical APR (see ‘Typical APR’ below).

Annual percentage rate (APR) – The interest rate payable annually on the balance of the loan or credit card. This allows potential clients to compare lenders. Under the Consumer Credit Act, lenders are legally required to disclose your APR.

Arrears – Late payments on a loan, credit card, mortgage, or most types of debt are called Arrears. The borrower has a legally binding obligation to settle the arrears as soon as possible.

Rate Agreement – Generally for the administration expenses of the constitution of a mortgage.

B

Basic rate – The interest rate set by the Bank of England. This is the rate charged to banks for Bank of England loans. The base rate and how it may change in the future has a direct influence on the interest rate that a bank may charge the consumer for a loan or mortgage.

Business loans – A loan specifically for a company and generally based on the company’s past and probable future performance.

VS

Car loan – A specific loan for the purchase of a car.

Consumer Credit Association (CCA) – Represents the majority of companies in the consumer credit industry. The government, local authorities, financial bodies, finance-focused media and consumer groups are all members. Members sign a constitution and must follow a code of business conduct and practice.

County Court Judgment (CCJ) – A county court can issue a CCJ to a person who has not paid any outstanding debts. A CCJ will negatively affect an individual’s credit history and can possibly result in being denied credit. A CCJ will remain on a credit history for 6 years. You can avoid this major negative stain on your credit history by paying off the CCJ in full within a month of receiving it; in this case, details of the CCJ will not be stored in your credit history.

Credit crisis – A situation in which lenders cut their loans simultaneously, usually due to a shared fear that borrowers will not be able to pay their debts.

Credit file – Information stored by credit reference agencies, such as Experian, Equifax and CallCredit, about credit agreements and individual loans. The credit file is checked when lenders consider a credit application.

Credit reference agencies – Companies that keep records of people’s credit and loan agreements, amounts owed, with whom, and payments made, including defaults, CCJ, arrears, etc.

Credit search – The general search carried out by the Lender with the credit reference agencies.

D

Debt consolidation – The transfer of multiple debts to a single debt through a loan or credit card.

Default – When a regular debt payment is lost. A default will register on an individual’s credit record and negatively affect the likelihood of success of any future credit application.

Data Protection Act – A 1998 Act of Parliament and the main legislation governing the use of personal data in the UK. Lenders cannot share an individual’s personal data directly with other institutions or companies.

me

Early redemption fee – A fee charged by lenders if a borrower pays off his debt before the agreed term is reached.

Capital – The value of a property beyond any loan, mortgage or other debt you have. The amount of money a person will receive if they sold their property and paid the property debt in full.

F

Financial Conduct Authority (FCA) – The institution designated by the government responsible for regulating the financial market.

First charge – The mortgage of a property. A lender who has the first charge on a property will have priority to repay his mortgage or loan with the funds available after the sale of a property.

Fixed interest rate – An interest rate that will not change.

H

Homeowners Loan – Also known as a secured loan. A homeowners loan is only available to people who own their own home. The loan will be secured against the value of the property, usually in the form of a second charge on the property.

I

Installment loans – Multiple loan repayments spread over a period. Depending on the lender, there may be flexibility in the amounts and the repayment schedule.

J

Stamp application – A loan or other credit application made by a couple instead of a single person, for example, 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 of time during which the loan will be repaid.

Loan to value (LTV) – Generally associated with a mortgage and in the form of a percentage. This is the amount of the loan in relation to the total value of the property. for example, an individual may be offered a 90% LTV mortgage on a property worth £ 100,000. In this case, the offer would be £ 90,000.

SUBWAY

Monthly refunds – Monthly payments made to pay off a loan, including interest.

Mortgage – A loan taken specifically to finance the purchase of a property, in most cases a house. The property is offered as collateral to the Lender.

OR

Online loans – Although most loans are available online. The Internet has enabled the development of technology that enables faster loan application processing than traditional methods. In some cases, a loan application, agreement, and the funds appearing in your account can take as little as 15 minutes or less.

P

Payday loan – A short-term cash advance of up to 31 days to be repaid on the next payday. Payday loans have a high annual percentage rate due to the shorter term of the loan.

Payment Protection Insurance (PPI) – Insurance to cover debt repayments in case the borrower is unable to keep his repayments for any number of reasons, such as layoff, illness or accident.

Personal loans – A general loan for any purpose and in variable amounts that can be granted to a person based on their credit history.

Price per risk – Lenders now have a variety of interest rates that are chosen based on people’s credit scores. A person with a low credit score is considered high risk and will likely be offered a higher interest rate as the lender takes into account the possibility of default. In contrast, a person with a high credit score and good credit history is considered low risk and will be offered a lower interest rate.

Q

Qualification 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, 18 years or more and a regular income. Many lenders may also include additional loan terms.

R

Regulated – financial “products” supervised by the Financial Conduct Authority (FCA). Lenders must follow a code of conduct and individuals are protected by the Financial Services Compensation Scheme (FSCS).

Refund schedule – The period of time during which a loan will be repaid and the details of the loan repayment amounts.

S

Second charge – A second loan, in addition to any other loan, that is secured against an individual’s property.

Secured loan – Also known as a homeowners 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 in the event that you do not keep the loan repayments.

Shared ownership – An arrangement in which an individual owns only a percentage of the property. The remaining percentage is owned by a third party, often a housing association. The individual may have a mortgage on the property he owns and pay rent on the property he does not own.

T

Total amount refundable – The total amount of the loan plus the applicable interest and fees.

Typical APR – The advertised interest rate offered to a minimum of 66% of successful loan applicants.

OR

Subscription – The process of data verification and approval of a loan.

Not regulated – 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 lender’s belief that you can repay the loan based on your credit score, credit history, and financial situation, among other factors.

V

Variable rate – An interest rate that will change during the repayment period of the loan.