Glossary of consumer finance terms

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

TO

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

Annual Percentage Rate (APR) – The interest rate payable annually on the loan or credit card balance. This allows potential customers to compare lenders. Under the Consumer Credit Act, lenders are legally required to disclose their 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 clear arrears as soon as possible.

settlement payment – In general, for the administrative expenses of setting up a mortgage.

B.

basic rate – The interest rate set by the Bank of England. This is the rate banks are charged for loans from the Bank of England. The base rate and how it may change in the future has a direct bearing on the interest rate a bank can charge a consumer for a loan or mortgage.

business loans – A loan specifically for a business and generally based on the past and likely future performance of the business.

C

car loan – A loan specifically for the purchase of a car.

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

County Court Judgment (CCJ) – A county court can issue a CCJ to a person who has not paid their outstanding debts. A CCJ will negatively affect a person’s credit history and may possibly result in being denied credit. A CCJ will remain on a credit record 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, CCJ details will not be stored in your credit report.

credit crunch – A situation in which lenders simultaneously cut their loans, 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 an individual’s credit and loan agreements. The credit file is checked when lenders consider an application for credit.

credit reference agencies – Companies that keep records of individual loan and credit agreements, amounts owed, with whom, and payments made, including defaults, CCJs, 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 you miss a regular payment of the debt. A default will be recorded on a person’s credit record and will negatively affect the chance of success of any future credit applications.

Data Protection Act – An Act of Parliament 1998 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 their debt before the agreed term of the debt is reached.

Capital – The value of a property beyond any loan, mortgage or other debt owed on it. The amount of money a person will receive if he sold his property and paid the debt on the property in full.

F

Financial Conduct Authority (FCA) – The institution designated by the government in charge of regulating the financial market.

first charge – The mortgage on a property. A lender who has the first charge on a property will have priority for the payment of your 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 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 repayment amounts and schedule.

j

joint application – A loan or other credit application made by a couple rather than a single person, for example, husband and wife.

L

Lender – The company that grants 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 pounds sterling.

SUBWAY

Monthly Refunds – Monthly payments made to pay off a loan including any interest.

Mortgage – A loan taken out 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 allows faster processing of a loan application than traditional methods. In some cases, a loan application, agreement, and 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 that is repayable on your next payday. Payday loans come with a high APR due to the shorter term of the loan.

Payment Protection Insurance (PPI) – Insurance to cover debt payments in the event that the borrower is unable to maintain their payments for any number of reasons, including dismissal, 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.

risk price – Lenders now have a variety of interest rates that are chosen based on a person’s credit rating. A person with a low credit score is considered high risk and is likely to be offered a higher interest rate as the lender takes into account the possibility that he will 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.

what

Qualification criteria – The eligibility requirements demanded by the Lender. The most basic criteria required to qualify for a UK loan are; permanent residence in the UK, 18 years or older 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).

reimbursement program – The period of time during which a loan will be paid and the details of the repayment amounts of the loan.

yes

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

secured loan – Also commonly known as a home loan. A secured loan is only available to homeowners. The loan amount is guaranteed against the value of the property. The lender has the right to repossess your property if you default on the loan.

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 part of the property that he owns and pay rent on the part of the property that he does not own.

T

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

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

you

subscription – The process of verifying data and approving 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 loan payment period.

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