The world of finance can be a confusing place if you aren’t clued up on the lingo. So, we’ve created an A-Z of vocab that’ll help you sort your phishing from your smishing.
Annual fees - are applied automatically by a credit card provider every 12 months, usually in return for certain rewards and benefits. Not all credit cards come with annual fees.
Annual percentage rate (APR) - APR (annual percentage rate) represents the total cost of borrowing to the customer over a year. It’s shown as a percentage and includes all interest and charges, for ease of comparison.
Annual Percentage Rate of Charge (APRC) - represents the total cost of a secured loan or mortgage to the customer, shown as an annual percentage of the total loan amount. It includes all interest rates and charges applied over the full loan term, making it useful for comparison.
Arrears - funds that are owed when you’ve missed one or more payments on your credit agreement.
Bad credit - (also known as adverse credit or poor credit) refers to when someone has experienced financial difficulties, and this has affected their credit rating. Information about how you manage credit stays on your credit file for 6 years before being removed. You could find it more difficult to get approved for finance with a bad credit rating, as lenders may see you as risky to lend to. However, there are certain lenders who offer products specifically for those with bad credit.
Balance transfer - is when you move an outstanding balance from one credit card to another. This is usually done when someone wants to get lower interest rates on a new card, to make the cost of borrowing cheaper.
Broker – a person or company who finds and arranges credit agreements on behalf of their customers, based on their customer’s individual needs and circumstances. Some charge commission for their services.
Cardholder - a person who has taken out a credit card or debit card in their own name. They are liable for paying back any outstanding balance on their credit card or overdraft.
Charge card – works like a credit card but you must repay the full amount each month to avoid interest and charges. You can’t just pay the monthly minimum amount and spread the cost like you can with a credit card.
County Court Judgement (CCJ) - a form of legal action taken against you if fail to make repayments on your credit agreement and your account has gone into default. A CCJ will stay on your credit report for six years and can seriously hinder your ability to borrow money in the future.
Credit – a method of borrowing money and paying it back later, usually with interest. The terms of the credit agreement will be set out by the lender at the start.
Credit card – a card that allows you to make purchases up to a pre-agreed credit limit. You can pay your balance in full (and avoid interest) - or spread the cost by making at least the minimum payment each month with interest.
Creditor - a person or company you owe money to.
Credit history - the record of information about you that’s held by the three credit reference agencies in the UK (Experian, TransUnion and Equifax). It contains six years of your financial history. It’s usually taken into consideration by lenders when you apply for finance. If you have a good credit history, this should increase your chances of approval.
Credit limit - the pre-agreed maximum amount you can borrow on a credit card or overdraft.
Credit rebuilding card - (also known as a credit card for bad credit) works like a regular credit card, but it’s designed for those with a poor or thin credit history. If you maintain your repayments on time, every time, you can use one of these cards to gradually improve your credit history.
Credit reference agency (CRA) - an organisation that collects and stores information from lenders about your credit history, credit applications and financial behaviour. The three main CRAs in the UK are Experian, Equifax and TransUnion.
Credit report - (also known as your ‘credit file’) contains a record of your credit history and other details held by credit reference agencies.
Credit score - the number you are given by the credit reference agencies to express your creditworthiness. The better your payment record, the higher your score should be. In turn, this should increase your chances of being approved for finance by lenders.
Credit union – a financial institution run by its members. The members put their savings into a collective so they can lend money to each other.
Credit utilisation ratio – a percentage that shows the amount of credit you are currently using out of your available credit card limits. It’s used by lenders to determine whether they want to lend you money and it can affect your credit score. It’s best to keep your credit utilisation ratio as low as possible to increase your chances of being accepted for credit.
Debt consolidation - a way of combining your existing debt, so you only need to make one monthly repayment to one lender. It could help to reduce your monthly outgoings. Bear in mind that if you extend your repayment period, you will pay more interest overall.
Default – a negative marker that can be registered on your credit report by lenders if you miss around three to six missed contractual payments. This will stay on your report for six years and can have a serious effect on your chances of getting approved for finance. Your existing lender may pass your debt to a debt collection agency. If you continue to fail to pay, they could take further legal action (such as a County Court Judgment).
Direct debit – an instruction you give to your bank to allow payments (such as household bills) to be deducted from your bank account on a regular basis. The amount you pay isn’t fixed, so it’s useful variable bills (like gas and electricity, for example).
Disposable income – the amount of money you have spare each month after you’ve paid your bills.
Eligibility checker – a tool that shows the likelihood of getting accepted for a financial product before you apply, without affecting your credit score.
Equity - the difference between the current market value of your property minus what you owe against it (i.e., your outstanding mortgage balance and any secured loans combined). Generally, the lower your mortgage balance is, and the more equity you have, the less risky you’ll appear to lenders. As a result, you may be able to borrow more and at a lower rate, compared to someone with less equity.
Gross income – the amount you earn before tax and other deductions.
Guarantor – someone who co-signs a formal credit agreement to promise that they’ll pay on behalf of the borrower if they fall behind. This helps borrowers with bad credit histories to get approved for finance when they may have been turned down otherwise.
Hard search - a full credit check that’s carried out by lenders when you apply for finance. A hard search will leave a footprint on your credit report for other lenders to see. It can cause a temporary dip in your credit score - and multiple hard searches made within a short space of time can be a red flag to lenders.
Hire purchase car agreement – is a form of car finance that’s secured against the vehicle. You pay the loan back in set monthly instalments (including interest) over an agreed number of years. Once you have paid the balance in full (including any ‘Option to purchase fee’) you become the legal owner of the vehicle.
Home improvement loan – does what it says on the tin. It’s a loan that you can use to make improvements to your home. You can either take out a secured or unsecured home improvement loan (more on that below).
Homeowner loan - is a secured form of borrowing, meaning you use your property as collateral. This usually enables you to borrow larger sums compared to a personal loan, but if you fail to make the repayments your home could be at risk.
Identity theft - an illegal act where someone steals personal details with the aim of using them for financial gain.
Interest - the cost of borrowing that’s added to your outstanding balance by lenders. It can also refer to profit that you can gain from putting your money into a savings account. The rate you’re offered can vary depending on the financial product, lender, market conditions, and your individual circumstances.
Introductory rate – an initial low interest rate that applies at the start of a credit card agreement for a fixed period (usually 6 months or more). Once the deal ends, you’re moved to a higher interest rate. Your eligibility depends on the lender’s criteria as well as your individual circumstances.
Late payment charge - a fee that may be applied by your creditor each time you pay less than the minimum amount, pay late, or completely miss a payment on your credit card.
Lifetime ISA (LISA) - is a savings account designed for those who want to save up for a house deposit or for retirement. You must be 18 or over but under 40 to open a LISA. You can pay in a maximum of £4,000 per tax year and you will receive a 25% bonus from the government (of up to £1,000 per tax year).
Minimum payment - the minimum monthly amount you need to pay on a credit card to avoid a breach of your agreement and any late fees. It’s usually worked out as a percentage of your balance, so it can go up or down in line with your outstanding balance.
Money transfer credit card – a credit card that enables you to transfer cash to your current account. For example, you can use your money transfer credit card to clear an overdraft (which could save you money if your overdraft is more expensive than your credit card). However, you need to factor in fees which will apply when you make a transfer (of up to around 4% of your balance).
Net income – the take-home pay that shows in your bank account, after tax and other deductions (such as your pension, for example).
Open Banking - a digital platform that enables you to see all your bank and credit card accounts in one place - using a single app or website.
Personal contract hire (PCH) - is a type of car finance where you pay a deposit upfront then lease the car for a fixed number of years. There’s no option to buy the car when your contract ends, but the monthly payments can be cheaper than other types of car finance.
Personal contract purchase (PCP) - is a type of car finance where you pay a deposit upfront then spread your repayments over a few years. The loan is secured against your vehicle, so if you fail to maintain repayments you risk having to hand your car back. When it comes to the end of your contract, you can either hand the car back, look to part-exchange it, or pay the balloon payment to become the legal owner.
Phishing - is when cyber criminals send emails to potential victims, fishing for personal information (such as bank details and passwords), which they can go on to use for monetary gain.
Remortgaging - the process of switching your existing mortgage to a new deal, usually with a new lender. You may wish to borrow additional funds for things like home improvements or to consolidate debt. You might also decide to remortgage because you want a better deal with lower interest rates.
Secured loan - a loan in which your home is used as 'security'. If you fail to repay the loan, the lender could take possession of your home and sell it to recoup the debt. However, as long as you're confident you can afford your repayments, it can be an effective way to raise a large amount of cash.
Smishing – is like ‘phishing’ but fraudsters use SMS as opposed to emails to try and access your details. For example, you could receive a text message that appears to be from your bank asking for your password.
Soft search - is performed when you use an eligibility checker to find out the likelihood of being accepted for credit, and when you check your credit report, for example. It doesn’t leave a footprint on your credit report for lenders to see.
Stamp duty land tax - a tax paid by the buyer of a residential property in England. The amount you pay depends on the value of the property you are buying and your individual circumstances (e.g., if you are a first-time buyer).
Standing order – an instruction to your bank to pay another account on a regular basis. This could be a second account of yours or someone else’s account. Unlike a direct debit, you control the exact amount that you pay.
Unsecured loan - (or personal loan) is not attached to your property, so if you fall behind with payments your home is not going to be at risk (however missing payments can still damage your credit score). You borrow a lump sum upfront, then pay it back in fixed instalments (including interest) until the full balance is cleared.
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