Choose Wisely financial jargon buster

Choose Wisely financial jargon buster

But what does it mean?

The world of personal finance is full of acronyms and overcomplicated explanations which can leave you feeling miffed when searching for financial products. Our jargon buster strips back all the fluff so you know exactly what you're looking for.  

A

AER: This is most commonly used in relation to bank accounts and stands for annual equivalent rate (AER). AER indicates the percentage interest you would earn on your balance if you were to leave it in a particular account for a full year.  

APR: The annual percentage rate (APR) is something that you’ll come across when searching for loans and credit cards. This figure, always written as a percentage, takes into account the total cost of borrowing. This includes any fees as well as the interest charged.  

B

Balance transfer: This is the act of moving a debt from one card to another with the aim of reducing the amount of interest you are paying. Some cards will promote themselves as balance transfer cards offering an introductory period of 0% interest for any balance that is transferred to their card.  

Bankruptcy: Bankruptcy is imposed by court order and is a legal term for when a person is unable to repay their outstanding debts. Being declared bankrupt will have a major negative effect on your credit file, limiting your ability to borrow in the future.  

C

Cashback: Some bank accounts and credit cards offer their customers cashback when using their cards to make purchases. This is often at well-known high street retailers and is paid to your card or account when you use it online or in-store at the selected retailers.  

CCJ: A County Court Judgement (CCJ) is issued when an individual fails to repay their outstanding debt, and is taken to court by the lender. This affects your credit rating and can harm your chances of getting credit or a mortgage later in life.  

Charges: This is money that is paid to your financial provider for their services. Charges can be for a variety of things such as going overdrawn, bounced payments, missed payments or even for just general admin. Charges will differ from lender to lender, so be sure to fully understand all charges before you get involved.  

Credit limit: This is the maximum amount of money that your finance provider has made available to you.  

Credit rating: A score that shows how responsible you are as a borrower. Everyone has one, and you should know what it is because it can affect how likely you are to be accepted for loans and credit cards - learn about yours here.

Credit reference agency: These agencies such as Experian, ClearScore and Equifax gather the credit records of consumers. This information is primarily used by finance providers to help them decide whether or not to lend to an applicant.  

Consolidation loan: A single loan which is used to pay off a number of smaller debts, therefore reducing the number of monthly outgoings into one, more manageable payment.  

Consumer Credit Act: The Consumer Credit Act of 1974 (and subsequent amendments), is a piece of legislation that governs finance providers and ensures that they act responsibly towards their customers.  

D

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

Direct Debit: An agreement made with your bank to allow a business or individual to transfer money from your account on agreed dates. Usually used for bills.  

E

Early repayment penalty: A fee charged for settling your loan early. Can come in the form of a one-off payment or a percentage of the paid off or remaining balance. This will differ from lender to lender.  

F

FCA: The Financial Conduct Authority is the governing body that regulates all credit lenders, brokers and financial services in the UK.  

H

High-cost short-term loan (HCST) : This type of loan is a step on from the payday loans. They are loans that are taken out over only a short amount of time, often at a higher rate of interest. There are now caps on fees and charges that now prevent customers spiralling into large debts. You can compare HCST loans here.

I

Interest-free period: This is the amount of time for which you won’t be charged interest. Often offered as an incentive by credit card providers.  

Interest rate: This is usually shown as a percentage and will determine 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 insolvency company who will then divide the money between everyone you owe.  

L

Loan payment holiday: Some lenders offer their customers the option to defer their monthly payments either at the start of the loan or for a certain period during the loan term, this is called a loan payment holiday. Just note that in most cases you will be still charged interest during your payment holiday, resulting in you paying more in the long run.  

M

Minimum payment (credit card): The lowest amount that you have to pay off your credit card balance each month. If you fail to make this payment you will likely be charged, as well as harming your credit file.  

O

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

Overdraft: Some bank accounts come with overdrafts. This is where your balance falls into the minus and you are essentially borrowing money from the bank. These can be authorised (if you have agreed on a certain amount with the bank), or unauthorised (where it has not been agreed or goes over the authorised amount). Banks will most often charge interest and fees for this facility.

P

Personal loan: Also known as an unsecured loan, this is an amount of money borrowed by a customer over a fixed loan term that doesn’t require any form security to placed against it (ie. a valuable asset). Borrowers will need to make monthly repayments over an agreed length of time and pay interest to their creditor. You can compare personal loans here.

R

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

S

Secured loan: This is where a customer will put up an asset (such as a car or their property), as security against the loan. This means if the borrower doesn’t pay then the lender is able to seize 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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Written by Mark
Published on 5th July 2017
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