loan terms explained

Adverse Credit

This is the term used for people who have a poor credit history. This could include previous mortgage or loan arrears, CCJ's or bankruptcy.

AER

This stands for Annual Equivalent Rate. This rate is generally quoted on interest paid on savings and investments. Interest paid monthly, quarterly or half-yearly represents a higher true rate than the same stated interest rate paid annually. Thus, the AER allows you to compare interest rates across accounts and reflects not just the amount of interest but also how often it is paid. It shows what your interest return would be if the interest was compounded and paid annually instead of monthly (or any other period).

Affinity / Donation Cards

These are issued by credit card companies and operate as standard credit cards but a percentage of purchases made via card usage is donated to a charitable beneficiary by the issuer. A donation may also made to the beneficiary on issue or first use of the card.

APR

This stands for Annual Percentage Rate. Any firm that lends money is required by law to quote the APR. Introductory rates do not include arrangement fees you may be charged and also don’t reflect any higher rate of interest that your borrowings will ultimately revert to. The APR takes into account the interest on a loan plus and additional charges making it easier for you to compare products. In general, the lower the APR the better the deal.

Arrangement Fee

This is a fee you a Lender for providing you with a mortgage or loan. They are usually paid on completion and tend to apply when you take out a fixed rate, discount or cash back mortgage.

Balance Transfer

Balance transfer rates are applied to existing card debt that is being moved from one issuer to another or a consolidation of other debts. These rates tend to be lower than standard rates and apply to the debt transferred or consolidated for a specified term or until it is repaid in full.

Bank of England

The Bank of England is the central bank of the United Kingdom.

Bankers Draft

A bankers draft is a secure way of receiving money where you fear acheque may bounce. The draft is a cheque which is drawn directly on the bank or building society against funds in a bank account. There is usually a fee for obtaining a bankers draft.

Base Rate

Base rate (sometimes called the repo rate) is the interest rate set by the Bank of England which determines borrowing and savings rates.

BBA

This stands for British Bankers' Association who are the trade association for British banks.

Bridging Loan

This is a short term loan that 'bridges' the time period between two property transactions. It is used to cover shortfalls between buying one property and selling another. Major banks and building societies can offer bridging finance.

Buffer Zone

These are facilities on some bank accounts whereby you can go overdrawn to a certain limit without being charged and sometimes without paying interest.

Building Society

A building society is a mutual organisation owned by its members - its savers and borrowers - and not by shareholders.

Cash Card

These are plastic cards used for withdrawing cash from Automatic Teller Machines (ATMs) - also known as hole in the wall machines.

CCA

This stands for the Consumer Credit Act. This legislation sets the rules for the way in which UK banks and lenders may lend money.

CHAPS

This stands for the Clearing House Automatic Payment System. It is the electronic transfer of payment between two accounts.

Cheque

A written order directing a bank to pay money

Consolidated Loan

This is a loan taken out to consolidate debts.

Credit Card

Credit cards are a form of borrowing used to purchase goods and services, to obtain cash advances and for consolidating debt.

Credit Rating

This is a scoring system that lenders issue people with to determine how credit worthy they are.

Credit Search

This is a check a lender may take out to determine whether a person has any County Court Judgments or a record of not repaying debts.

Debit Card

A debit card allows you to make purchases and withdraw cash by using funds from your bank account. These funds are automatically withdrawn from the connected account. They act as an alternative to cash and cheques.

Direct Debit

This allows an organisation to take money directly for a persons bank account.

Euro

The basic monetary unit of most members of the European Union (introduced in 1999)

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Further Advance

This is the process of borrowing additional money against a property.

Gross Interest

This is interest earned by deposits at banks and financial institutions, or on gilts etc. before the deduction of tax.

Guarantor

This person repays and debt incurred if you are unable to do this yourself.

Hire Purchase

This means you hire a product you are buying and pay for it and interest over a fixed term.

Index-linked

Changes in line with inflation.

Inflation

Inflation is a general rise in prices across the economy.

Interest free credit

When you pay for something in installments over a certain period free of any interest charges.

LIBOR

LIBOR stands for the London Interbank Offered Rate and is the rate of interest at which banks borrow funds from other banks, in marketable size, in the London interbank market.

LTV

This stands for Loan to Value which is ratio between size of loan and value of property. So, for example if you require a £90,000 mortgage on a property valued at £100,000 the loan-to-value you require is 90%.

Negative Equity

You are considered to be in negative equity if the money you owe on your mortgage is greater than the value of your property.

Net Interest

Interest earned once basic level tax has been deducted.

Overdraft

Banks will often allow you to overdraw your current account. If you have arranged for an overdraft facility on your account you will be charged an authorised overdraft rate - the rate of interest that you will pay on your overdrawn balance if you remain within your authorised limit. If you have not arranged an overdraft facility or exceed your authorised limit you will be charged interest at the unauthorised overdraft rate.

Payment Holiday

A period during which the you make no payments on borrowings. This is usually only available on a flexible lending.

Personal Loan

A loan taken out by an individual over a fixed term.

Regular Savings Accounts

A number of banks and buildings societies offer regular savings accounts. These require a deposit to be paid into the account each month. These accounts often give a higher rate of interest than a normal savings account. However, they usually come with a restriction on the number of withdrawals (and missed deposits), which if exceeded can mean a dramatic drop in the rate of interest paid.

Secured Loan

A secured personal loan is one in which some of your property (home, stocks and shares, etc) is held, by the lender, as security for the amount you have borrowed. Secured loans usually offer lower interest rates than unsecured ones.

Standing Order

An authorised payment that instructs the regular payment of funds.

Store Card

Store cards are a form of credit card but are issued by or for a particular retailer and can only be used in that retailer's store's) / chain (unless it is endorsed by a credit card company).

SVR

This stands for Standard Variable Rate. This is the standard interest rate charged by lenders. The rate goes up and down (is variable) and your repayments will be adjusted accordingly.

Unsecured Personal Loan

A personal loan available from a bank, building society or other financial institution without security. They are usually covered by the terms of the Consumer Credit Act. A lump sum will be loaned in return for you agreeing to make regular repayments usually by direct debit. Personal loans are available from £500 up to £25K (security will usually be needed for loans of large amounts) and are repayable over a period of time, usually between 6 months and 10 years.

VAT

This stands for Value Added Tax which is charged on most things that a person buys.