This guide will help you understand many terms that are used in the consumer finance industry.
Acceptance rate– The percentage that is successful in obtaining a loan or credit card. The advertised rate known as the Typical Average APR must be offered to 66% of applicants (See “Typical APR” below).
Annual Percentage Rate (APR).– Annual interest rate payable on the balance of the credit card or loan. This information allows potential customers to compare different lenders. The Consumer Credit Act requires lenders to disclose their APR.
ArrearsArrears are a term that refers to missed payments on loans, credit cards, mortgages, and other types of debt. The borrower is legally bound to pay all arrears promptly.
Arrangement FeeUsually for the administration of setting up mortgages.
Base Rate– The Bank of England’s interest rate. This is the interest rate charged by the Bank of England to banks when they lend money from them. The base rate, and its potential changes in the future, have a direct impact on the interest rate that a bank can charge a consumer for a loan or mortgage.
Business loans– A loan that is specifically tailored to a business, and generally based upon the company’s past and future performance.
Car Loan– A loan for the purchase of a vehicle.
Consumer Credit Association (CCA).– Represents the majority of businesses involved in consumer credit. All members include the government, local authorities and financial institutions, as well as media outlets that focus on finance and consumer groups. Each member signs a constitution and must comply with a code for practice and business conduct.
County Court Judgement (CCJ).A County Court may issue a CCJ to a person who has not settled outstanding debts. A CCJ may adversely affect an individual’s credit history and possibly lead to them being denied credit. A CCJ will remain on a credit file for six years. You can avoid this negative credit mark by settling the CCJ within one month. In this instance, no details about the CCJ will remain on your credit report.
Credit CrunchLenders may reduce their lending while simultaneously borrowers are worried about their ability to repay the debts.
Credit FileCredit reference agencies such as Equifax, Experian and CallCredit store information about an individual’s credit and borrowing arrangement. When Lenders review a credit application, the Credit File is reviewed.
Credit Reference AgenciesCompanies that keep records on individuals credit and borrowing arrangements. They also record who owes what and the payments made. This includes defaults, arrears, CCJs, etc.
Credit Search– The Lender conducts a general search with credit reference agencies.
Consolidating Debt– Transfer of multiple debts to one debt through a loan or creditcard.
Default– If a regular debt repayment is not made. A default will be noted on a person’s credit report and can adversely impact any future credit applications.
Data Protection Act– Act of Parliament 1998. This is the main legislation that governs personal data use in the UK. Lenders are prohibited from sharing personal data of individuals with any other organizations or companies.
Early Redemption FeeLenders will charge a fee for borrowers who pay off their debts before the terms agreed to.
EquityA property’s actual value is not affected by any loan, mortgage, or other debt. A person’s net income if they sell their property and repay all debts.
Financial Conduct Authority (FCA).– A government-appointed institution that regulates the finance market.
First Charge– A mortgage on a property. Lenders with the first charge of a property have priority when it comes to repaying their mortgage loan or mortgage from funds that are available after the property has been sold.
Fixed Rate– A fixed interest rate.
Homeowner LoanAlso known as a secured loan. Only individuals who own their own homes are eligible to apply for a Homeowner loan. The loan will be secured against property value, usually by a second charge.
Instalment Loans– Multiple loans repayments spread out over a longer period. The Lender may allow for flexibility with the repayment schedule and amounts.
Joint ApplicationA loan or any other credit application is made by a couple, rather than a single individual. The husband and the wife.
Lender– The company that provides the loan or mortgage.
Loan Purpose– The purpose of the loan.
Loan Term– The amount of time that the loan will be repaid.
LTV = Loan to ValueUsually associated with a mortgage, and usually expressed as a percentage. This is the amount of the loan in relation to the total value of the property. e.g. an individual may be offered a mortgage of 90% LTV on a property worth £100,000. In this case the offer would be £90,000.
Monthly Repayments– Monthly payments that are made to pay off a loan.
Hypothecary– A loan that is used specifically to finance the purchase and renovation of a property. Lender is given the property as security.
Online loansOnline loans are possible for most types of loans. Technology has improved the speed of loan applications. Sometimes, a loan application can be approved and funds appear in your account within 15 minutes.
Payday Loan– A short-term cash advance that can be repaid on your next payday. Payday loans are subject to a higher interest rate due to their shorter terms.
Payment Protection Insurance (PPI).– Insurance to protect the repayments of debt if the borrower is unable to repay their loan payments due to illness, redundancy or another reason.
Personal loansA general loan, which can be used for any purpose and with varying amounts. This is based on a person’s credit history.
Price for riskLenders can now offer a variety of interest rates, which are determined by an individual’s credit score. A person with poor credit scores will be considered High Risk. The Lender considers the possibility that they might default on their repayments and will offer them a higher interest rate. An individual with a high credit score, good credit history and excellent credit rating will be offered a lower interest rate.
Qualifying Criteria– The Lender’s eligibility requirements. For a loan to be approved in the UK, you will need to have permanent UK residence, a regular income and an 18-year-old or older. Lenders might also offer additional lending conditions.
Regulated Financial ‘products’ are financial products that are supervised by the Financial Conduct Authority. Financial Services Compensation Scheme protects individuals. Lenders must adhere to a code.
Repayment schedule– Details of the loan repayment amounts and the time frame for which the loan will be repaid.
Second Charge– A second loan that is secured against the individual’s property in addition to any other loans.
Secured LoanAlso known as a Homeowner Loan. Only homeowners can apply for a secured loan. The loan amount is secured by the property’s worth. In the event that you fail to make the loan payments, the lender has the right of repossession.
Part Ownership– A deal in which one person owns a certain percentage of the property. The remainder is owned by a third party, often a housing association. A mortgage may be taken on the portion they own while they rent out the remainder.
Total amount to be repaid– The loan amount plus any interest and fees.
APR average– Advertised interest rate offered to successful applicants for loans at least 66%
Underwriting– The verification of data and approval of a loan.
Unregulated– Not covered or regulated by Financial Conduct Authority (FCA).
Unsecured Loan– A loan without collateral that is granted on good faith. The Lender believes that you are able to repay the loan, based on your credit score and credit history, as well as financial standing.
Variable Rate– A change in the interest rate over the loan repayment period.