Acceptance rate: The percentage of customers who are successful in their loan or credit card application. A minimum of 66% of applications that are successful have to have the advertised rate offered, which is known as the typical APR.
Annual percentage rate (APR): The APR shows the real rate of interest payable over a year after the fees, admin costs, and other chargers are factored in. This allows consumers to compare deals easier, and lenders are legally required to display the APR under the Consumer Credit Act.
Arrears: If a consumer fails to keep up with mortgage or loan repayments, it results in a person’s account being in arrears. The borrower has a legal and financial obligation to repay the arrears to the lender, whether it’s an institution or a private individual.
Arrangement fee: Generally associated with mortgages, this fee covers the administration costs involved with setting up a loan.
Car loan: A personal loan used to purchase a car.
Consumer Credit Association (CCA): Consumer Credit Association represents most businesses in the home credit industry, and it is also the point for contact for local authorities, government, other finance sector representative bodies, consumer groups, and the media who are interested in the industry. Members have to sign a constitution, a business conduct pledge, and a code of practice.
County court judgment (CCJ): A county court judgment is issued by a County Court to an individual failing to pay an outstanding debt. An unsettled CCJ affects an individual’s credit rating and it can cause you to be refused credit. For 7 years CCJ details remain on a person’s credit file. When the debt is settled fully within 30 days of the date of the judgment, it will not be on the credit register list.
Credit file: Information that relates to an individual’s credit and borrowing. The details are on file with the credit reference agencies: Equifax, Callcredit, and Experian. Lenders refer to a person’s credit file when a borrowing application is assessed.
Credit search: Before your application is processed, the lender contacts the main credit reference agencies to obtain details of your credit history and the current credit agreements you have.
Debt consolidation: When you transfer existing debts onto a single loan or credit card.
Default: The failure of the borrower to keep up with their loan repayments. A default will affect an individual’s credit score adversely and it will reduce the chance of future credit applications being successful.
Data Protection Act: This law protects an individual’s personal information. A lender is not allowed to pass a person’s details onto any other institutions without their permission.
Early redemption charge: A penalty fee charged by lenders if a borrower should redeem a loan or mortgage within a specific time period.
Equity: The value of a property after any debts secured against the property have been repaid. The amount of money an individual could get if they sold their house after the mortgage/secured loans were paid off.
First charge: The main mortgage. A lender that has first charge over a property also has a first call on funds available from the sale of the property.
Fixed rate: A set rate of interest that does not fluctuate.
Homeowner loan: A secured loan available only to individuals who own their own home. The value of the debt will be secured against the property.
Joint application: An application made by more than one person.
Lender: The company that is advancing a loan.
Loan purpose: The reason the loan is needed.
Loan term: The length of time to pay the loan off.
Loan to value (LTV): Generally associated with mortgages and shown as a percentage. The loan amount in relation to the property’s value that it is secured against. For example, someone needs a £90,000 mortgage to purchase a £100,000 house, so the borrower would be borrowing 90% LTV.
Monthly repayments: The amount paid each month to the lender in order to pay off the loan plus interest.
Mortgage: A loan that is acquired to purchase a home or to pay for your existing home, and where the property itself is used by the lender to secure the loan.
Payday loan: A short-term cash advance that you must repay on your next payday. The maximum period of time for a payday loan is 31 days.
Payment protection insurance – Insurance that provides protection on a loan, mortgage or credit card for repayments should you become unable to work because of illness, accident, or redundancy.
Price for risk: Quite a few lenders now charge different interest rates depending on the borrower’s credit score. Someone that has a low credit score is seen as a high risk because they are more likely to default on their repayments than a person that has a good credit score and a solid credit history, so they will be charged a higher interest rate.
Qualifying criteria: The eligibility requirement the lender demands. Standard criteria are required to qualify for a loan, including being a permanent resident of the country, being over the age of 18, and having a regular income. However, many lenders have additional lending conditions.
Regulated: Financial products covered by the Financial Services Authority. Lenders must hold fast to a code of conduct, while consumers are protected by the Financial Services Compensation Scheme and have the option to seek recourse for any problems they have with the product from the Financial Ombudsman Service.
Repayment schedule: An agreement that details how and over what period of time the borrower will repay a loan.
Second charge: A loan, in addition to the mortgage, that is secured against the property of the borrower.
Secured loan: Also called a “homeowner” loan, which is only available to individuals who own their own home. The value of the debt is secured against the property, which means that your home could be at risk if you fail to keep up with repayments.
Shared ownership: An arrangement where a person only owns a percentage of the home they live in and a third party owns the remaining share, which is generally a housing association or a social landlord. The individual holds a mortgage on the portion of the house they own and then pays rent on the remainder.
Total amount repayable: The amount of the original loan plus the interest, fees, and other costs.
Typical APR: Typically, the APR is the advertised interest rate being offered to a least 66% of successful applicants. This means that up to as many as 33% of customers may be offered an interest rate that is different than the one they applied for.
Underwriting: The process of verifying data and approving the loan.
Unregulated: Products and services not covered by the Financial Services Authority.
Unsecured loan: A loan that is not secured against your property or belongings.
Variable rate: An interest rate that can fluctuate throughout the loan’s term.