Jargon
|
Definition
|
Annual Equivalent Rate (AER) | All accounts are required to show an AER. This is a way of expressing the account’s interest rate over a one year period and includes the impact of any compound interest and bonus that may be received. The AER is a useful way of comparing the interest rates of two different savings accounts.
|
APR | Annual Percentage Rate (APR) is the figure that includes interest rates and any associated charges such as administration or redemption fees that may be applied to money you borrow. The APR shows the cost for comparison of borrowing money over a 1 year period. This figure can be used to compare costs between different lenders.
|
Authorised Overdraft | These are arranged in advance with the bank or building society that provide your current account. Your bank or building society will allow you to borrow money up to a limit. Fees and interest are often charged and you should review the terms of the overdraft before using it.
|
Balance Transfer | Transferring either all or part of the money owed on one credit card over to another credit card.
|
Balloon Payment | A large payment due at the end of a loan contract. If you wish to buy your car at the end of a PCP agreement, you will need to make a balloon payment.
|
Credit Card | A credit card can be used in a similar way to a debit card. Unlike a debit card, which is linked to your current account, a credit card allows you to pay for goods or services on credit. Each month you’ll be sent a statement showing all of your credit card purchases. You can choose to pay off the debt immediately or pay it off over a period of time. If you don’t pay it off immediately you will normally be charged interest, which can be high.
|
Credit Default | Failure to make an agreed repayment on time. For example a borrower failing to make the monthly repayments.
|
Credit Score / Credit Rating | A number that indicates whether you may be considered a high or low risk by credit providers such as banks and other lenders. This number is based on information including your previous credit history and applications.
|
Hire Purchase (HP) | A method of car finance where you pay a deposit up front and pay the balance of the car cost plus interest in fixed monthly instalments. You will not own the car until you’ve made the last payment.
|
In-store finance | In-store finance is a popular way to purchase items and spread the cost over a period of time, it is often referred to as ‘buy now pay later’ credit. You may be offered an interest free period meaning you won’t pay any interest if you pay back the loan before this ends. If you haven’t paid off the debt at the end of the interest free period you will start to pay interest, normally at a high rate. This will make paying off the debt even harder.
|
Loan Trap | If you have problems paying off a loan, the lender may offer you an extension or a further loan. You can end up being trapped in debt because you’ll have to pay further interest and fees. Debt can quickly spiral out of control.
|
Overdraft | An overdraft allows you to spend more from your current account than your balance. This is referred to as being ‘overdrawn’. There are two types: Authorised Overdrafts and Unauthorised Overdrafts – look up these definitions for further information.
|
Payday loan | Payday loans are short-term loans with extremely high interest rates, intended to fund small purchases (normally under £1,000) until your next payday. If you don’t repay the debt on time it can quickly spiral out of control. Due to the high interest rates often applied to payday loans these should usually only be considered as a last resort.
|
Percentage | A percentage means ‘out of 100’. For example, 20 out of 100 is 20%. Equally 20p out of £1.00 is 20%.
|
Personal Contract Purchase (PCP) | A method of car finance where you pay a deposit and make monthly payments for a fixed period of time. At the end of the contract you have the option to make a balloon payment and keep the car, return the car to the dealership and walk away or start a new PCP agreement.
|
Personal Loan | A loan made to an individual, usually for a fixed amount of money over a fixed time period. Personal Loans are normally offered by banks and building societies, however other high street retailers have begun to offer personal loans.
|
Secured Loan | These loans are borrowed against assets such as your home or car. If the terms of the contract are broken, the lender could seize the asset.
|
Unauthorised Overdraft | This is unplanned borrowing that your bank or building society has not agreed to. An unauthorised overdraft also applies when you exceed the borrowing limit on an authorised and is typically more expensive than an authorised overdraft.
|
Unsecured debt or Loans | A type of loan or debt not secured against any assets. Personal loans, credit cards and in store credit are typically unsecured.
|