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These are common terms used throughout the website or you may read in other literature.
AER
Annual Equivalent Rate.This shows what the interest rate would be if the interest on savings were paid and added to savings at the end of each year. Normally, interest is paid monthly or quarterly. The AER is worked out in a standard way so you can compare interest rates directly with each other. For savings, the higher the AER the better.
APR
Annual Percentage Rate.This is the cost of a loan, taking into account the interest you pay, any other charges, and when the payments fall due. The cost is standardised as an annual percentage rate so you can compare the cost of one loan with another, for example, a loan with an APR of 13% is more expensive that one with an APR of 10%.
BANKRUPTCY
Bankruptcy is a court order that you or someone you owe money can apply for if you are in debt. Once you have been made bankrupt, an official called an 'official receiver' takes control of your assets, money, property, and deals with your creditors.
BASE RATE
Bank of England base rates determines what others lend money at. Generally mortgages are closer to this rate than other forms of lending such as credit cards
BASIC BANK ACCOUNT
a special type of bank or building society account for people who may have difficulty in opening a standard current account, normally because of credit history problems. You can have money paid into it, take out cash and have your bills paid from it. It doesn’t let you spend more than you have in the account so there is no risk of going overdrawn and running up overdraft charges.
CCJ
County Court Judgement. This is an order made by a Judge to settle a claim made in the county court usually by people you owe money to.
CHARGES
Usually means where you have gone overdrawn without authority, made a payment late or some other discrepancy on a bank account or loan. Some charges are unfair and can be removed by simply writing to the lender.
COMPOUND INTEREST
This is interest usually paid on a savings account. It is calculated by adding together the amount you have paid into your account (the capital) with the interest paid on it. This is also the type of interest you pay on money you borrow – which means the amount you owe can increase quickly over quite a short period of time.
CONSOLIDATION LOAN
When you combine all your debts into one place. This is usually done to obtain a better interest rate, achieve lower payments by spreading out over time or to help budgetting by having one payment rather than many.
CREDIT
When you have money in your account you are in credit. When you buy something 'on credit' it means you have borrowed the money for an agreed period of time but must pay it back.
CREDIT CARD
This is an account where you get a card which allows you spend up to a certain amount on it. Each month you get a statement and must pay back at least the minimum amount. Interest is only charged if you don't pay off the full amount each month.
CREDIT HISTORY
also Credit File, Credit Record or Credit Report. Details of your financial dealings with banks, credit card companies and loan companies are recorded at Credit Reference Agencies. This includes the number of times you have applied for credit. The history goes back up to 6 years.
CRA
Credit Reference Agency. They allow potential lenders(creditors) to share credit-related information to help them lend responsibly and reduced risk. This includes public records (for example, electoral roll entries to validate identity), credit account information (for example, repayment records for loans, credit agreements, mortgages, or hire purchase) and records of recent credit checks that have previously been requested. CRAs make it possible for lenders to quickly make lending decisions and also helps lenders guard against fraud.
Credit Reference Agencies:
- do not make lending decisions, the lenders make these
- do not know which applications are successful or refused so cannot tell why a consumer has been refused credit
- do not hold a blacklist of people or properties
- do not score or rate consumers. Applications for credit are scored by the lenders and different lenders use difference scoring methods.
DEBIT
You make a debit when you withdraw money from your account.
DEBIT CARD
A debit card is a plastic card used to make a purchase or withdraw cash from your account instantly. This means that you can normally only take money out of your account if there are funds in it.
DEBT MANAGEMENT
a debt management plan can be an effective way of getting out of debt. It prioritises your payments into ensuring the essential ones such as mortgage, food, council tax, heat, light and water are all met before consideration is given to other debts.
Find a reputable Debt Management Specialist
DIRECT DEBIT
is an instruction to your bank to release money automatically from your bank account to pay a regular bill. This is useful for frequent bills which are for different amounts each time, for example telephone bills. You are told in advance, in writing, by the billing company how much will be taken and the date it will be taken out of your account.
DIRECT DEBIT GUARANTEE
If the payment from your bank is wrong then it will be resolved immediately by you bank so as not to cause you hardship. The compliant is investigated and resolved very quickly.
IFA
Independent Financial Advisor.an individual or firm that can assess your financial needs, recommend suitable products, and arrange for you to buy or invest in these products. Where advice concerns 'packaged products' (such as unit trusts, open-ended investment companies, investment trust savings schemes, investment-type life insurance and pensions), an adviser must normally be either:
• tied to a single product provider (in which case they are a just a Financial Advisor); or
• independent and able to recommend any product on the market.
An adviser must be authorised by the Financial Services Authority (FSA).
IVA
Individual Voluntary Arrangement. This is an alternative to bankruptcy designed for certain circumstances where bankruptcy is not a viable option.
Considering An IVA or think you've been missold and IVA because of recent news ?
HP (HPA)
Hire Purchase (Hire Purchase Agreement) . Cars are often bought this way. You will not own the car until all the instalments have been paid. If payments are not made the car might be repossessed and sold. You would not be able to sell the car without the permission of the lender, until you had paid for it.
INTEREST
For loans it determines how much extra is added to the money borrowed. For savings it determines how much is added to your account as a 'reward' for keeping it there. Interest can be calculated daily, monthly or yearly.
INTEREST RATE
The is how much interest is added to your savings or borrowings. The higher the rate the better for savers, the worse for borrowers. see also AER, APR and Compound Interest
LTV
Loan to Value. A 90% LTV means a loan of 90% of the value of the property. For example on a £100,000 house a 90% LTV means £90,000
OVERDRAFT
This is where you borrow money from you bank. This can be authorised at a certain pre-agreed rate or unauthorised at a usually much higher rate and can incurs additional charges.
PRIORITY DEBTS
These are debts which carry the strongest penalties if payment is not made, for example, eviction from your home, disconnection of gas or electricity, or imprisonment for non-payment of court fines or council tax. Priority debts should be paid off before other types of debt (non-priority debts a ones like credit cards).
SECURED LOAN
This is money borrowed from a lender, using your property as an extra guarantee of repayment. If the amount is not paid in full, the lender may repossess and sell the property.
Free advice about secured loans
STAKEHOLDER PENSION
A method of automatically paying regular amounts from your bank account. You instruct your bank to pay the money for you to a particular person or company. It is your responsibility to change the payment if it needs to be altered.
SUB-PRIME LENDING
Also called Non-Status or Impaired Credit Lending. Lenders willing to make loans to people who are unable to obtain credit from mainstream lenders, such as high street banks or building societies, because of a poor credit record.
If in doubt
If you are ever in any doubt about a financial product or service, you should always ask for clarification.