Dictionary Of Consumer Finance Terms
Acceptance Rate – The percentage of customers that are successful when applying for a loan or credit card. 66% or more applicants must be offered the advertised rate know as the Typical APR (See ‘Typical APR’ below).
Annual Fee: A charge sometimes required by credit card companies for use of an account. Annual fees range between $10-50 a year and are most common with rewards cards or cards for subprime borrowers.
Annual Percentage Rate (APR) – The rate of interest payable annually on the loan or credit card balance. This allows potential customers to compare lenders. Under the Consumer Credit Act Lenders are legally required to disclose their APR.
Arrears – Missed payments on a loan, credit card, mortgage or most kinds of debt are termed Arrears. The borrower has a legally binding obligation to settle any arrears as soon as possible.
Arrangement Fee – Generally for the administration costs of setting up a mortgage.
Asset: Assets are things owned by a person that have cash value. This can include homes, cars, boats, savings and investments.
Bankruptcy: A proceeding that legally releases a person from repaying a portion or all debts owed. Bankruptcy damages your credit for 7-10 years and should only be considered as a last resort if you cannot repay your debts. (See Chapter 7-13 Bankruptcy)
Base Rate – The interest rate set by the Bank of England. This is the rate charged to banks for lending from the Bank of England. The base rate and how it may change in the future has a direct influence on the interest rate a bank may charge the consumer on a loan or mortgage.
Business Loans – A loan specifically for a business and generally based on the businesses past and likely future performance.
Car Loan – A loan specifically for the purchase of a car.
Consumer Credit Association (CCA) – Represents most businesses in the consumer credit industry. Government, local authorities, financial bodies, finance focused media and consumer groups are all members. Members sign a constitution and must follow a code of practice and business conduct.
County Court Judgement (CCJ) – A CCJ can be issued by a County Court to an individual that has failed to settle outstanding debts. A CCJ will adversely affect the credit record of an individual and can possibly result in them being refused credit. A CCJ will stay on a credit record for 6 years. It is possible to avoid this major negative stain on your credit record by settling the CCJ in full within one month of receiving it, in this case no details of the CCJ will be stored on your credit record.
Chapter 7 Bankruptcy: A type of consumer bankruptcy where your responsibility for your debts is cleared entirely. With this kind of bankruptcy you are not required to pay back debts you owe from before your filing. To qualify for a Chapter 7 bankruptcy your income must be below your state’s median income. Chapter 7 bankruptcy filing records remain on your credit report for 10 years and the record of each account included in your filing will remain on your report for 7 years.
Chapter 13 Bankruptcy: A type of bankruptcy where the consumer must pay off some of their debts over time. Chapter 13 bankruptcy filing records remain on your credit report for 7 years from the discharge date or 10 years from the filing date if it is not discharged. Each account included in the filing will remain on your report for 7 years.
Credit Crunch – A situation where Lenders cut back on their lending simultaneously usually down to a shared fear that borrowers will not be able to repay their debts.
Credit File – Information stored by credit reference agencies, such as Experian, Equifax and CallCredit, on an individuals credit and borrowing arrangements. The Credit File is checked when Lenders consider a credit application.
Credit Reference Agencies – Companies that keep records of individuals credit and borrowing arrangements, amounts owed, with who and payments made, including any defaults, CCJ’s, arrears etc.
Credit Search – The general search undertaken by the Lender with the credit reference agencies.
Debt C0nsolidation – The transfer of multiple debts to a single debt via a loan or credit card.
Default – When a regular debt repayment is missed. A default will be recorded on an individuals credit record and will adversely affect the chance of success of any future credit applications.
Delinquency: A term used for late payment or lack of payment on a loan, debt or credit card account. Accounts are usually referred to as 30, 60, 90 or 120 days delinquent because most lenders have monthly payment cycles. Delinquencies remain on your credit report for 7 years and are damaging to your credit score.
Data Protection Act – An act of Parliament in 1998 and the main legislation that governs the use of personal data in the UK. Lenders are not allowed to share an individuals personal data directly with other institutions or companies.
Early Redemption Charge – A fee charged by Lenders if a borrower pays back their debt before the debts agreed term is reached.
Equifax – One of the three national credit bureaus (also known as credit reporting agencies) that collects and provides consumer financial records.
Equity – The value a property has beyond any loan, mortgage or other debt held upon it. The amount of money an individual will receive if they sold their property and repaid the debt on the property in full.
Financial Conduct Authority (FCA) – The government appointed institution responsible for regulating the finance market.
First Charge – The mortgage on a property. A Lender who has first charge on a property will take priority for repayment of their mortgage or loan from the funds available after the sale of a property.
Fixed Rate – An interest rate for a credit card or loan that remains constant.
First Mortgage – The primary loan on a real estate property. This loan has priority over all other “secondary” loans.
Homeowner Loan – Also commonly known as a secured loan. A Homeowner Loan is only available to individuals that own their own home. The loan will be secured against the value of the property usually on the form of a second charge on the property.
Home Equity – The part of a home’s value that the mortgage borrower owns outright. This is the difference between the fair market value of the home and the principal balances of all mortgage loans.
Inquiry – A record on your credit report that shows every time you, one of your creditors, or a potential creditor requests a copy of your credit report data. (See Soft Inquiry, Promotional Inquiry and Hard Inquiry).
Instalment Loans – Multiple loan repayments spread over a period. Depending on the Lender their may be flexibility in the repayment amounts and schedule.
Joint Application – A loan or other credit application made by a couple rather than a single person e.g. husband and wife.
Late Payment Charge – A fee charged by your creditor or lender when your payment is made after the date due. Late payment charges usually range from $10-50.
Lender – The company providing the loan or mortgage.
Loan Purpose – The purpose for which the loan was acquired.
Loan Term – The period of time over which the loan will be repaid.
Loan To Value (LTV) – Generally associated with a mortgage and taking the form of a percentage. This is the loan amount in relation to the full value of the property.
Monthly Repayments – The monthly payments made to settle a loan including any interest.
Mortgage – A loan taken specifically to finance the purchase of a property in most cases a home. The property is offered as security to the Lender.
Mortgage Banker – A person or company that originates home loans, sells them to investors and processes monthly payments.
Mortgage Broker – A person or company that matches lenders with borrowers who meet their criteria. A mortgage broker does not make the loan directly like a mortgage banker, but receives payment for their services.
Online Loans – Although most loans are available online. The Internet has allowed for the development of technology that allows for the faster processing of a loan application than traditional methods. In some cases a loan application, agreement and the funds appearing in your account can take as little as 15 minutes or less.
Payday Loan – A short term cash advance of up to 31 days which is repayable on your next payday. Payday loans come with a high APR because of the shorter term of the loan.
Payment Protection Insurance (PPI) – Insurance to cover debt repayments should the borrower be unable to maintain their repayments for any number of reasons including redundancy, illness or an accident.
Personal Loans – A general loan for any purpose and in varying amounts that can be provided to an individual based up on their credit history.
Price For Risk – Lenders now have a range of interest rates that are chosen based on an individuals credit score. An individual with a poor credit score is deemed High Risk and will likely be offered a higher interest rate as the Lender factors in the possibility of them defaulting on their repayments. Conversely an individual with a high credit score and a good credit history is considered Low Risk and will be offered a lower rate of interest.
Qualifying Criteria – The eligibility requirements required by the Lender. The most basic criteria required to qualify for a loan in the UK are; permanent UK residency, age 18 or over and a regular income. Many Lenders may also include extra lending conditions.
Regulated – financial ‘products’ that are overseen by the Financial Conduct Authority (FCA). Lenders must follow a code of conduct and individuals are protected by the Financial Services Compensation Scheme (FSCS).
Repayment Schedule – The time period over which a loan will be repaid and the details of the loan repayment amounts.
Risk Score – Another term for a credit score.
Scoring Model – A complex mathematical formula that evaluates financial data to predict a borrower’s future behavior. Developed by the credit bureaus, banks and FICO, there are thousands of slightly different scoring models used to generate credit scores.
Second Charge – A second loan, in addition to any other loan, that is secured against an individuals property.
Secured Debt – A loan that requires a piece of property (such as a house or car) to be used as collateral. This collateral provides security for the lender, since the property can be seized and sold if you don’t repay the debt.
Secured Loan – Also commonly known as a Homeownr Loan. A secured loan is only available to to homeowners. The loan amount is secured against the value of the property. The Lender has the right to repossess your property should you fail to maintain the loan repayments.
Shared Ownership – An agreement in which an individual owns only a percentage of the property. The remaining percentage is owned by a third party often a housing association. The individual may have a mortgage on the part of the property they own and pay rent on the part of the property they do not own.
Total Amount Repayable – The total amount of the loan plus the interest and any applicable fees.
Typical APR – The advertised interest rate that is offered to a minimum of 66% of successful loan applicants.
Underwriting – The process of verifying data and approving a loan.
Unregulated – Not covered and regulated by the Financial Conduct Authority (FCA).
Unsecured Loan – A loan that does not require collateral and is provided on ‘good faith’. Under the belief by the Lender that you can repay the loan based on your credit score, credit history and financial standing amongst other factors.
Variable Rate – An interest rate that will change during the loan repayment period.