The A - Z of Finance

The A - Z of Finance
There are bound to be some finance terms that confuse you (what does APR even mean?!). This A - Z list will give you a simple rundown on the most common finance jargon, without the confusion. Get empowered and choose wisely.

A

AER (Annual Equivalent Rate): Mostly associated with banks and savings accounts, it shows you the percentage interest you would earn on your account balance over a year.

APR (Annual Percentage Rate): You’ll come across this when looking for loans and credit cards. This percentage shows borrowers the cost of borrowing includes any fees the interest charged.

B

Balance transfer: When you move the debt from one card to another card to reduce the amount of interest you are paying.

C

Cashback: This is an incentive lenders offer to borrowers, usually with bank accounts and credit cards. After making a purchase, borrowers can receive a cash refund for a percentage of their purchase.

CCJ (County Court Judgement): A CCJ is issued when an individual fails to repay their outstanding debt and the lender takes them to court. It can negatively affect your credit score and will limit your access to credit in the future.

Charges: This is money that is paid to your credit for their services. Charges can be for a anything from going overdrawn, bounced payments, missed payments or general admin. Make sure you fully understand how much the charges are and why you’re paying them.

Credit limit: The maximum amount of money your finance provider is willing to make available to you.

Credit rating: A score that everyone has to show lenders how responsible you are as a borrower. Make sure you find out your score as it can affect how likely you are to be accepted for credit.

Credit reference agency: A company that collects all the necessary information to decide if you are a responsible borrower, such as Experian, ClearScore and Equifax. They give you a credit rating (above).

Consolidation loan: A single loan used to pay off multiple smaller debts. This reduces the number of monthly outgoings into one, manageable payment.

Consumer Credit Act: The Consumer Credit Act of 1974 is a legislation that monitors finance providers and makes sure they act responsibly and treat consumers fairly.

D

Debt management: This is a formal plan between a lender and their customer to help reduce their unsecured and outstanding debt.

Direct Debit: An agreement made with your bank to allow a business or individual to take money from your account on an agreed date. They cannot be set up without your permission.

E

Early repayment penalty: A fee charged for paying off your loan early. Can be a one-off payment or a percentage of the paid off or remaining balance, depending on the lender.

F

FCA: The Financial Conduct Authority is the company that regulates all credit lenders, brokers and financial services in the UK. Find out more here.

H

High-cost short-term loan (HCST) : Often called ‘payday loans’, HCSTs are taken out over a short period with a high interest rate. There are now caps on fees and charges to protect consumers.

I

Interest-free period: A period of time where you won’t be charged any interest, often associated with credit cards. Compare 0% introductory purchase period cards.

Interest rate: This is usually shown as a percentage and is the amount charged by the lender and will show you the amount you will repay compared to the amount you originally borrowed.

IVA: An Individual Voluntary Arrangement (IVA), is a formal agreement with your creditors to pay your debts. Usually, this is paid to a third-party company who will then divide the money between everyone you owe.

L

Loan payment holiday: Some lenders offer customers the option to postpone their monthly repayments either at the start of the loan or for a period during the loan term. In most cases you will be still charged interest during your payment holiday, so you’ll be paying more in the long run.

M

Minimum payment (credit card): The lowest amount you must pay off your credit card balance every month. If you fail to make this payment, you will likely be charged and harming your credit score.

O

Outstanding balance: This is the amount of borrowed money that is still left to repay.

Overdraft: When you withdraw more money than the account holds, you fall into your overdraft. This is effectively a small short-term loan from the bank. You will sometimes have to pay fees and interest but there are plenty of options available.

P

Personal loan: Also known as unsecured loans, are lent to a borrower based on their credit history and ability to make the repayments. Repayment is usually made through fixed amounts over a fixed term.

R

Representative APR: When applying for credit, the amount of interest you’ll have to pay will be decided by the lender. Companies have to show a representative APR, which is the rate (including any fees) that will be offered to at least 51% of accepted customers.

S

Secured loan: Where a customer will put up an asset (such as a car or property) as security against the loan. This means if the borrower doesn’t pay, then the lender can repossess their asset.

Standing order: A payment made regularly from a current account. Unlike a Direct Debit, this is set up by the account holder, not the bank.

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