Glossary of terms
Financial terms aren't always easy to understand. If you want to know what something means, simply click on a link for a simple explanation.
A
APR (Annual Percentage Rate) (also interest rate)
The APR is the cost of borrowing as a yearly rate over the life of a loan. It allows you to compare the true cost of borrowing from different lenders. It takes into account the amount borrowed, the interest rate, some other charges and the term of the loan. This is not to be confused with the simple interest rate, which is the amount of interest charged for borrowing as a percentage of the amount borrowed.
The APR is the cost of borrowing as a yearly rate over the life of a loan. It allows you to compare the true cost of borrowing from different lenders. It takes into account the amount borrowed, the interest rate, some other charges and the term of the loan. This is not to be confused with the simple interest rate, which is the amount of interest charged for borrowing as a percentage of the amount borrowed.
Arrears
Overdue payments on a debt.
Overdue payments on a debt.
Assets
Any property, cash or other valuable belongings.
Any property, cash or other valuable belongings.
Attachment of Benefits
An order which allows creditors to take money out of a debtor's benefit entitlement before it is paid to them if a debtor does not repay a debt as agreed.
Depending on the type of debt, the creditor may need to apply through the court.
An order which allows creditors to take money out of a debtor's benefit entitlement before it is paid to them if a debtor does not repay a debt as agreed.
Depending on the type of debt, the creditor may need to apply through the court.
Attachment of Earnings
An order from the Court which allows creditors take money out of a debtor's salary before it's paid to them under a County Court Judgment. Creditors can ask for this if a debtor does not repay a debt as ordered by the court.
An order from the Court which allows creditors take money out of a debtor's salary before it's paid to them under a County Court Judgment. Creditors can ask for this if a debtor does not repay a debt as ordered by the court.
B
Base rate
The rate of interest set by the Bank Of England which is used by lenders to decide interest rates / the cost of lending.
The rate of interest set by the Bank Of England which is used by lenders to decide interest rates / the cost of lending.
Bailiff
Can be private or an officer employed by the Court, a person who is authorised to enter property and take goods which can be sold to repay debts.
Can be private or an officer employed by the Court, a person who is authorised to enter property and take goods which can be sold to repay debts.
Bankrupt(cy)
A legal process for individuals who are unable to pay their debts. All their assets pass to an official receiver for sale towards repaying their creditors. Once discharged, normally in 12 months, the person is relieved from paying the remaining debt.
A legal process for individuals who are unable to pay their debts. All their assets pass to an official receiver for sale towards repaying their creditors. Once discharged, normally in 12 months, the person is relieved from paying the remaining debt.
Banker's order
A banker's order is an instruction which a bank receives from an account holder, telling them to pay a set amount at regular intervals to another account. This can also be called a standing order.
A banker's order is an instruction which a bank receives from an account holder, telling them to pay a set amount at regular intervals to another account. This can also be called a standing order.
C
Charging Order
Creditors can apply for a charging order if payments are not being made to a county court judgment. The order from the Court basically secures the debt against the property. [Turning unsecured debts into secured debt]. A creditor might even try to force a sale to get their debt repaid but it is far more likely that they will be prepared to accept payment by instalments until the property is sold at some later date, when their debt will be paid as a priority from the proceeds of the sale.
Creditors can apply for a charging order if payments are not being made to a county court judgment. The order from the Court basically secures the debt against the property. [Turning unsecured debts into secured debt]. A creditor might even try to force a sale to get their debt repaid but it is far more likely that they will be prepared to accept payment by instalments until the property is sold at some later date, when their debt will be paid as a priority from the proceeds of the sale.
Collateral (also 'security')
The assets put down as security on a secured loan or mortgage.
The assets put down as security on a secured loan or mortgage.
County Court Judgment (CCJ)
If a debt is not repaid, the creditor might ask the County Court for a CCJ. If the Court grants it, they'll order the debtor to pay back the unpaid debt, whether in full or in instalments.
If a debt is not repaid, the creditor might ask the County Court for a CCJ. If the Court grants it, they'll order the debtor to pay back the unpaid debt, whether in full or in instalments.
Credit Rating (also 'Credit File' / 'Credit Record')
Your credit rating helps creditors decide whether or not it's safe to lend someone money. It contains information like: how much they owe, how good they are at repaying debts, whether creditors have had to take legal action (like applying for a CCJ) to get their money back...
A good rating makes borrowing money easier and cheaper (more likely to be approved + lower APR). A poor rating makes borrowing money more difficult and more expensive (less likely to be approved + higher APR).
Your credit rating helps creditors decide whether or not it's safe to lend someone money. It contains information like: how much they owe, how good they are at repaying debts, whether creditors have had to take legal action (like applying for a CCJ) to get their money back...
A good rating makes borrowing money easier and cheaper (more likely to be approved + lower APR). A poor rating makes borrowing money more difficult and more expensive (less likely to be approved + higher APR).
Credit Reference Agency
Keeps track of people's credit rating, providing potential creditors with the information they need to decide whether or not to lend money - and what terms they should propose.
There are three main credit reference agencies in the UK: Experian Ltd, Equifax plc and Callcredit plc. They will provide you with your record for a small fee (normally £2, although online / telephone services may charge more). It is worth checking your rating to see what creditors are being told about you - if there is a mistake, you have the right to get it corrected.
Keeps track of people's credit rating, providing potential creditors with the information they need to decide whether or not to lend money - and what terms they should propose.
There are three main credit reference agencies in the UK: Experian Ltd, Equifax plc and Callcredit plc. They will provide you with your record for a small fee (normally £2, although online / telephone services may charge more). It is worth checking your rating to see what creditors are being told about you - if there is a mistake, you have the right to get it corrected.
Creditor
A person or company that is owed money.
A person or company that is owed money.
Capped loan / mortgage
A loan / mortgage with an interest rate which can go up or down, but cannot exceed a pre-determined level.
A loan / mortgage with an interest rate which can go up or down, but cannot exceed a pre-determined level.
D
Debt Collector
An organisation appointed to collect money owed. Some debt collectors collect on behalf of the original creditor and pass on any money they collect less their fees, others will 'buy' overdue debts at a discount and collect payment direct from the debtor.
An organisation appointed to collect money owed. Some debt collectors collect on behalf of the original creditor and pass on any money they collect less their fees, others will 'buy' overdue debts at a discount and collect payment direct from the debtor.
Debt Consolidation loan / mortgage
A single loan / mortgage taken out to replace multiple debts (credit / store cards, overdrafts, loans, etc.).
A single loan / mortgage taken out to replace multiple debts (credit / store cards, overdrafts, loans, etc.).
Debt Management
A programme to manage someones debts without further borrowing which involves negotiating new terms such as lower payments and reduced or frozen interest/charges based on their ability to pay.
A programme to manage someones debts without further borrowing which involves negotiating new terms such as lower payments and reduced or frozen interest/charges based on their ability to pay.
Debtor / Borrower
A person or company that owes money.
A person or company that owes money.
Default notice
An official letter telling a debtor they have not kept up with their agreed payments. It will be registered on their credit file for six years, making it more difficult to get credit and must be issued, in the case of most debts, before further action can be taken by a creditor.
An official letter telling a debtor they have not kept up with their agreed payments. It will be registered on their credit file for six years, making it more difficult to get credit and must be issued, in the case of most debts, before further action can be taken by a creditor.
Direct Debit
An agreement authorising an organisation to debit money from the bank account of another individual or organisation on a regular basis.
An agreement authorising an organisation to debit money from the bank account of another individual or organisation on a regular basis.
Discount loan / mortgage
A loan / mortgage that begins with a fixed period during which the interest rate is lower (often 2 percentage points lower) than the lender's standard variable rate (SVR). Once this period is over, the interest rate reverts to the SVR.
A loan / mortgage that begins with a fixed period during which the interest rate is lower (often 2 percentage points lower) than the lender's standard variable rate (SVR). Once this period is over, the interest rate reverts to the SVR.
E
Early repayment charge / ERC (or 'redemption fee')
If a loan / mortgage is paid off early, the lender will not make as much interest as expected - but will have already gone to the expense of setting up the loan / mortgage. So they may charge a fee for early repayment.
If a loan / mortgage is paid off early, the lender will not make as much interest as expected - but will have already gone to the expense of setting up the loan / mortgage. So they may charge a fee for early repayment.
Equity
The portion of a home that is already entirely owned - the portion that the homeowner has not borrowed money to get, or borrowed money against.
Equity equals the value of the property less the balance owing on any mortgage or loan secured on it.
The portion of a home that is already entirely owned - the portion that the homeowner has not borrowed money to get, or borrowed money against.
Equity equals the value of the property less the balance owing on any mortgage or loan secured on it.
F
Fixed rate loan / mortgage
A loan / mortgage with a fixed interest rate and fixed repayment amounts. The rate is fixed at the start of the term, for either an agreed period or for the full term of the loan.
A loan / mortgage with a fixed interest rate and fixed repayment amounts. The rate is fixed at the start of the term, for either an agreed period or for the full term of the loan.
H
Hire purchase
A kind of loan in which the borrower gets the goods (often a car, stereo system or other expensive item) at the start, but doesn't own it until they've paid off the full price.
A kind of loan in which the borrower gets the goods (often a car, stereo system or other expensive item) at the start, but doesn't own it until they've paid off the full price.
I
Insolvency Practitioner (IP)
An IP is a person qualified to handle formal insolvency cases (bankruptcy/sequestration, Individual Voluntary Arrangements (IVAs) and Trust Deeds).
An IP is a person qualified to handle formal insolvency cases (bankruptcy/sequestration, Individual Voluntary Arrangements (IVAs) and Trust Deeds).
Individual Voluntary Arrangement (IVA)
A legally binding agreement between someone who owes money and their creditors. Designed by the government to help people get out of debt, an IVA can only be administered by an Insolvency Practitioner (IP). It is an alternative to bankruptcy, and normally only available to people with £15,000 or more of unsecured debt.
The person agrees to pay a certain amount for a fixed period of time (normally 5 years). Their creditors agree to write off any debt outstanding at the end of that period, and not to take any further action against them.
A legally binding agreement between someone who owes money and their creditors. Designed by the government to help people get out of debt, an IVA can only be administered by an Insolvency Practitioner (IP). It is an alternative to bankruptcy, and normally only available to people with £15,000 or more of unsecured debt.
The person agrees to pay a certain amount for a fixed period of time (normally 5 years). Their creditors agree to write off any debt outstanding at the end of that period, and not to take any further action against them.
Insolvent / Insolvency
When a persons assets are less than their liabilities they are insolvent. Bankruptcy/Sequestration, Individual Voluntary Arrangements (IVAs) and Trust Deeds are types of formal insolvency procedures.
When a persons assets are less than their liabilities they are insolvent. Bankruptcy/Sequestration, Individual Voluntary Arrangements (IVAs) and Trust Deeds are types of formal insolvency procedures.
Interest-only loan / mortgage
A loan / mortgage on which the borrower pays only the interest. This means monthly repayments are lower, but the capital owed does not go down at all. At the end of the term, the borrower will owe as much as they borrowed at the start.
A loan / mortgage on which the borrower pays only the interest. This means monthly repayments are lower, but the capital owed does not go down at all. At the end of the term, the borrower will owe as much as they borrowed at the start.
L
Late payment charges
A fee for making a payment later than agreed.
A fee for making a payment later than agreed.
P
Payment holiday
Some lenders will let their customers take a 'holiday' from making repayments to a debt. This holiday might come at the start of the term, or at any point during the term.
Some lenders will let their customers take a 'holiday' from making repayments to a debt. This holiday might come at the start of the term, or at any point during the term.
R
R3 - the Association of Business Recovery Professionals
A professional association for insolvency, business recovery and turnaround specialists in the UK.
A professional association for insolvency, business recovery and turnaround specialists in the UK.
S
Secured Loan
A loan backed by the borrower's property - in most cases, their home. Often comes with a lower APR than an unsecured loan because the lender is taking a smaller risk, since they know the property can ultimately be sold and the equity used to pay the debt.
A loan backed by the borrower's property - in most cases, their home. Often comes with a lower APR than an unsecured loan because the lender is taking a smaller risk, since they know the property can ultimately be sold and the equity used to pay the debt.
Sequestration
The Scottish equivalent of Bankruptcy. A resident of Scotland can enter into sequestration if they are unable to pay off their debts. Any assets they own will be sold off to make sure their creditors get some of their money back.
The Scottish equivalent of Bankruptcy. A resident of Scotland can enter into sequestration if they are unable to pay off their debts. Any assets they own will be sold off to make sure their creditors get some of their money back.
SMS - Short Message Service
Information sent by electronic text direct to a mobile phone.
Information sent by electronic text direct to a mobile phone.
Standing Order
A standing order is an instruction which a bank receives from an account holder, telling them to pay a set amount at regular intervals to another account. This can also be called a bankers order.
A standing order is an instruction which a bank receives from an account holder, telling them to pay a set amount at regular intervals to another account. This can also be called a bankers order.
T
Trust Deed
A Trust Deed is a legally binding agreement for Scottish residents between someone who owes money and their creditors. The person agrees to pay a certain amount for a fixed period of time (normally 3 years). Their creditors agree to write off any debt outstanding at the end of that period, and not to take any legal action against them (including pushing for sequestration).
Designed by the government to help people clear debt, a Trust Deed can only be administered by an Insolvency Practitioner (IP). It is an alternative to sequestration, and normally only available to people with £10,000 or more of unsecured debt.
A Trust Deed is a legally binding agreement for Scottish residents between someone who owes money and their creditors. The person agrees to pay a certain amount for a fixed period of time (normally 3 years). Their creditors agree to write off any debt outstanding at the end of that period, and not to take any legal action against them (including pushing for sequestration).
Designed by the government to help people clear debt, a Trust Deed can only be administered by an Insolvency Practitioner (IP). It is an alternative to sequestration, and normally only available to people with £10,000 or more of unsecured debt.
Telephone Banking
A service allowing clients to access information about their bank accounts and transactions, and to issue new instructions, by phone.
A service allowing clients to access information about their bank accounts and transactions, and to issue new instructions, by phone.
U
Unsecured Loan
A loan not backed by any assets.
A loan not backed by any assets.
V
Variable rate loan / mortgage
A loan / mortgage with an interest rate that varies, going up or down often, but not always, when the Bank of England's Base Rate changes.
A loan / mortgage with an interest rate that varies, going up or down often, but not always, when the Bank of England's Base Rate changes.