A guide to many of the terms used in the consumer finance market.
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 rate known as the Typical APR (see ‘Typical APR’ below).
Annual Percentage (APR) – The annual interest rate to be paid on the balance of the loan or credit card. This allows potential customers to compare lenders with each other. Under the Consumer Credit Act, lenders are required by law to disclose their APR.
Overdue payments – Missed payments on a loan, credit card, mortgage, or most types of debt are called arrears. The borrower has a legally binding obligation to pay any overdue payments as soon as possible.
Arrangement costs – Generally for the administration costs of taking out a mortgage.
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 impact on the interest rate a bank is allowed to charge consumers for a loan or mortgage.
Business Loans – A loan specific to a company and generally based on the company’s past and likely future performance.
Car loan – A loan specifically for the purchase of a car.
Consumer Credit Association (CCA) – Represents most companies in the consumer credit sector. Government, local authorities, financial institutions, finance-oriented media and consumer groups are all members. Members sign bylaws and must adhere to a code of conduct and business conduct.
County Court Judgment (CCJ) – A CCJ can be issued by a County Court to a person who has not paid their outstanding debts. A CCJ negatively impacts an individual’s credit record and could potentially result in him or her being denied credit. A CCJ remains on a credit record for 6 years. It is possible to avoid this major negative blemish on your credit record by completely clearing the CCJ within a month of receiving it. In this case, no details of the CCJ will be stored on your credit record.
Credit crunch – A situation in which lenders simultaneously cut back on their lending, usually because of a 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, about individuals’ credit and loan agreements. The Credit File is checked when Lenders consider a credit application.
Credit Reference Agencies – Companies that keep records of individual credit and loan agreements, amounts due, with whom and payments made, including any defaults, CCJs, delinquent payments, etc.
Seek credit – The general investigation conducted by the lender at the credit reporting agencies.
Debt consolidation – Transferring multiple debts into one debt through a loan or credit card.
Standard – When a regular debt payment is missed. A default will be recorded on an individual’s credit record and will negatively impact the success rate of future credit applications.
law for the protection of personal information – A 1998 Act of Parliament and the main piece of legislation governing the use of personal data in the UK. Lenders are not allowed to share individuals’ personal information directly with other institutions or companies.
Costs for early repayment – A fee that lenders charge if a borrower repays their debt before the agreed term of the debt is reached.
Equity – The value a property has over any loan, mortgage or other debt held on it. The amount of money a person receives if they sell their property and fully repay the debt on the property.
Financial Conduct Authority (FCA) – The institution designated by the government that is responsible for regulating the financial market.
First load – The mortgage on a property. A lender who has the first burden on a property is given priority in repaying his mortgage or loan from the funds available after the sale of a property.
Fixed interest – An interest rate that does not change.
Loan homeowner – Also commonly known as a secured loan. A homeowner loan is only available to individuals 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.
Installment loans – Multiple loan payments spread over a period. Depending on the lender, there may be flexibility in repayment amounts and schedule.
Joint application – A loan or other credit application made by a couple instead of a single person, for example husband and wife.
moneylender – The company providing the loan or mortgage.
Purpose of the loan – The purpose for which the loan was taken out.
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 relative to the full value of the property. for example, a person can get a 90% LTV mortgage on a property valued at £100,000. In this case, the bid would be £90,000.
Monthly repayments – The monthly payments to settle a loan including any interest.
Mortgage – A loan taken out specifically to finance the purchase of a home, in most cases a home. The property is offered to the Lender as security.
Online loans – Although most of the loans are available online. The Internet has enabled the development of technology that can process a loan application faster than traditional methods. In some cases, a loan application, agreement and money appearing in your account can take just 15 minutes or less.
Payday loan – A short-term cash advance of up to 31 days to be repaid on your next payday. Payday loans have a high APR because of the shorter term of the loan.
Payment Protection Insurance (PPI) – Insurance to cover the repayment of debts if the borrower is unable to meet its repayments for a number of reasons, including layoff, illness or an accident.
Personal loans – A general loan for any purpose and in different amounts that can be given to an individual based on their credit history.
Price for risk – Lenders now have a range of interest rates that are chosen based on a person’s credit score. A person with a bad credit score is considered high risk and is likely to be offered a higher rate of interest as the lender takes into account the possibility of defaulting on their repayments. Conversely, a person with a high credit score and good credit history is considered low risk and will be offered a lower interest rate.
Qualifying Criteria – The eligibility requirements required 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 can also include additional loan conditions.
regulated – financial ‘products’ regulated by the Financial Conduct Authority (FCA). Lenders must follow a code of conduct and individuals are protected by the Financial Services Compensation Scheme (FSCS).
Repayment schedule – The period over which a loan will be repaid and the details of the loan repayment amounts.
Second load – A second loan, in addition to any other loan, secured by a person’s property.
Secured loan – Also commonly known as a home 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 default on loan repayments.
Shared 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 individual can mortgage the portion of the property he owns and pay rent on the portion of the property he does not own.
Total amount to be refunded – The total amount of the loan plus the interest and any costs.
Typical APR – The advertised interest rate offered to a minimum of 66% of successful loan applicants.
Acquisition – The process of verifying 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 lender’s belief that you can repay the loan based on your credit score, credit history, and financial strength, among other factors.
Variable interest – An interest rate that will change during the repayment period of the loan.