A guide to the many terms used in the consumer finance market.
acceptance rate – Percentage of successful clients 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 due 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 Missed payments on a loan, credit card, mortgage, or most types of debt are called arrears. The Borrower is legally bound to settle any arrears as soon as possible.
arrangement fee – In general for administration costs to create the mortgage.
base price The interest rate set by the Bank of England. This is the rate banks charge for lending from the Bank of England. The base rate and how it may change in the future has a direct effect on the interest rate a bank may charge a consumer on a loan or mortgage.
Business loans A loan specific to a business and generally based on the business’s past and potential future performance.
car loan A car loan.
Consumer Credit Association (CCA) – Represents most of the business in the consumer credit industry. Government, local authorities, financial bodies, finance-focused media and consumer groups are all members. Members sign the constitution and must follow the code of practice and business conduct.
District Court Judgment (CCJ) A CCJ can be issued by a county court to an individual who has failed to settle an outstanding debt. CCJ will negatively affect an individual’s credit history and can lead to credit denial. CCJ will remain on credit history for 6 years. It is possible to avoid this major negative spot on your credit history by settling the CCJ in full within one month of receiving it, in which case no details of the CCJ will be stored in your credit history.
credit crunch A situation where lenders cut back on their lending all at once usually leads to a common 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, on individuals’ credit and borrowing arrangements. A credit profile is checked when lenders consider a credit application.
Credit reference agencies – Companies keeping records of individuals’ credit and borrowing arrangements, amounts due, from and payments made, including any defaults, CCJ’s, arrears etc.
Find credit – The general research that the lender performs with credit reference agencies.
debt consolidation Converting multiple debts into one debt through a loan or credit card.
shortening – When he misses regular debt repayments. Default will be recorded in the individuals credit history and will negatively affect the chance of success of any future credit applications.
Data protection law – An Act of Parliament in 1998 and the main piece of legislation governing the use of personal data in the United Kingdom. Lenders are not permitted to share individuals’ personal data directly with other organizations or companies.
Early redemption fee A fee charged by lenders if the borrower pays off his debts before reaching the agreed-upon term for the debts.
justice – The value the property has after any loan, mortgage or other debt owed by it. The amount of money an individual would receive if he sold his property and paid off the debt on the property in full.
Financial Conduct Authority (FCA) – The government-appointed institution responsible for regulating the finance market.
first shipment – Mortgage. The lender who incurs the first fee on the property will take priority in paying off its mortgage or loan from the funds available after the property is sold.
Fixed exchange rate Interest rate will not change.
Homeowner loan Also 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 fee on the property.
installment loans Multiple loan repayments spread over a period. Depending on the lender, they may have flexibility in repayment amounts and schedule.
subscription request A loan or other credit application made by a couple rather than a single person, such as a husband and wife.
the lender The company providing the loan or mortgage.
The purpose of the loan The purpose for which the loan was obtained.
loan period The time period during which the loan will be repaid.
loan to value (LTV) It is generally linked to a mortgage and takes the form of a percentage. This is the loan amount relative to the full value of the property. For example, an individual might be offered a 90% LTV mortgage on a £100,000 property. In this case the offer would be £90,000.
Monthly fees – Monthly payments to settle the loan including any interest.
Mortgage loan – A loan taken specifically to finance the purchase of a property, in most cases a house. The property is offered as security to the lender.
Online loans Although most loans are available online. The Internet has allowed the development of technology that allows the loan application to be processed faster than traditional methods. In some cases, the loan application, agreement, and funds appearing in your account may take as little as 15 minutes or less.
Payday loan A short-term cash advance of up to 31 days payable on the next payday. Payday loans come with a higher APR due to the shorter term of the loan.
Payment Protection Insurance (PPI) – Insurance to cover debt repayment in the event that the borrower is unable to pay his installments for any number of reasons including redundancy, illness or an accident.
personal loans – A general loan for any purpose and in varying amounts that can be provided to an individual based on his credit history.
risk price Lenders now have a range of interest rates that are chosen based on an individual’s credit score. An individual with a poor credit score is considered high risk and is likely to be offered a higher interest rate because the lender factors in the possibility that he will default on his payments. On the contrary, an individual with a high credit score and a good credit history is considered to be low risk and will be offered a lower rate of interest.
Qualification criteria Eligibility requirements required by the lender. The basic criteria required to qualify for a loan in the UK are; Permanent UK residence, 18 years of age or older and a regular income. Many lenders may also include additional lending terms.
Organize Financial “products” that are supervised by the Financial Conduct Authority (FCA). Lenders must follow a code of conduct and individuals are protected under the Financial Services Compensation Scheme (FSCS).
Payment schedule – The time period during which the loan will be repaid and details of the loan repayment amounts.
second shipment – A second loan, as well as any other loan, secured against the property of individuals.
secure loan Also known as a home owner 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 fail to keep the loan repayments.
joint ownership An agreement in which the individual owns only a percentage of the property. The remaining percentage is owned by a third party often a housing association. An individual may take out a mortgage on a portion of the property that they own and pay rent on a portion of the property that they do not own.
Total amount payable Total loan amount plus interest and any applicable fees.
Typical April The advertised interest rate offered to a minimum of 66% of successful loan applicants.
Subscription – Data verification and loan approval process.
unorganized – It is neither covered nor regulated by the Financial Conduct Authority (FCA).
Unsecured loan – A loan that does not require collateral and is provided in good faith. It is in the lender’s belief that you can repay the loan based on your credit score, credit history and financial standing among other factors.
Variable rate An interest rate that changes during the loan repayment period.