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Consumer Finance Jargon Definitions

Consumer Finance Jargon Definitions

 

AER – Annual Equivalent Rate. This number represents the interest rate you would receive from a savings or current account. It shows how much interest you will get over a year taking into account how often interest is paid and compounding. There is the potential for the AER to be affected by cash withdrawals from savings accounts, so make sure to check with your bank about charges.

APR – Annual Percentage Rate. This number represents the interest rate that you pay to borrow money over the course of a year from mortgage lenders and loan companies. The APR includes up-front fees which are spread out throughout the course of the repayments. For example, if you borrow £1000 from your bank over the course of a year and are charged a 10% APR, your repayment would be £1000 + 10% (£100) = £1100.

Arrangement Fee – This is (usually) a small fee charged by lenders and other companies to cover the administration costs of setting up products such as loans and mortgages.

Arrears – You will be classified as being in arrears when you are overdue on repayments. Being in arrears affects your credit rating and can therefore limit the amount of credit available to you in the future. If you secure debt against your property, your possessions and property can be repossessed to clear the arrears. Most companies pay their employees in arrears i.e. you are paid money at the end of the month that you have already earned by working through the month.

BACS Payment – A payment method used by many employers to credit bank or building society accounts directly. It is provided by BACS Ltd (Bankers Automated Clearing Service).

Bounced Cheque – When a cheque is paid into an account, but the writer of the cheque does not have enough money in their account to follow through with the payment, the cheque will “bounce”. The bank will then return the cheque to the cheque writer and no money will enter any account. Bouncing cheques sometimes incur large fees.

CCJ – County Court Judgements. If you owe money, and are in arrears, then the creditor can take action against you in the County Court. There will be a private hearing where a judgement will be made, based upon the facts of the agreement, on whether you should repay money, and the means of how this should be done.

Credit Card – An electronic plastic card, that looks like a card for a bank account, which allows you to pay for goods up to the value of the limit of credit. The creditor will determine how much your credit limit is. Credit cards are a good way to build a credit rating if used wisely, with a low credit limit and paid off in full each month. Failure to pay off the credit card at the end of each month will usually incur a percentage increase on the remainder of the outstanding credit, which can make it increasingly difficult to pay off if it spirals out of control.

Credit Crunch – A credit crunch is when there is a widespread reduction on the availability of credit or banks increase the price of gaining credit, or both. A credit crunch is national problem that stems from the banks anticipating problems with the collateral of customers i.e. house prices falling throughout the country among many other potential reasons like increased interest rates or problems within the banking sector as a whole.

Credit Rating – A value given to any individual, business or country to determine the risk of giving them credit. An agency will calculate a credit rating using a range of factors including financial history, assets and their liability. A poor credit rating, or credit score, indicates to a lender that there is a high risk of you being unable to repay money borrowed. This will ultimately result in you being unable to borrow money or only getting credit with very high interest rates.  

Direct Debit – A direct payment, authorised by you, from your bank account that gives someone else the right to remove money from your account. The most common uses of direct debits are for bill payments, charitable donations, transfers to savings accounts etc.

EAR – Effective Annual Rate. The amount of interest charged on overdrafts or loans. Unlike APR it does not include additional charges.

Equity – The term for a company’s valuation, and the equal parts of a company’s worth which is split up and divided between shareholders. It is also used as the value of a property after mortgage and payment charges have been paid. Negative equity is when you owe more money on a house than its current sale value.

Fixed-Rate Interest – An interest rate which doesn’t change for a specified period of time.

Guarantor – A credible person who supports a person’s application for a mortgage or loan and decreases the risk of the bank lending money to a person. They can guarantee to the bank or building society those payments will be paid on time.

Interest – A sum of money that you pay on borrowed money or that you receive on deposited savings. Interest rates are expressed as percentages over a period of time, usually annually. The most common types of interest are APR and EAR.

Loan – Money borrowed under strict repayment terms. There are many different types of loans, with different lengths of time and differing interest rates. It is always advisable to shop around when looking for the best loan available to you.

Mortgage – A form of loan given to you to help you buy a property. They are usually loans over a long period of time. If you fall behind on your payments then the lender usually has the right to repossess the property from you.

Online Pay Day Loans – A short term loan applied for online that is intended to help cover certain expenses until a person’s pay day, when they can repay the borrowed money. The interest rates are usually extremely high and it is easy to get caught in a trap of continuous pay day loan borrowing.  

Overdraft – An arranged service supplied by a bank which allows customers to spend more money than is actually in their account by borrowing it from the bank, usually without charge if it is paid back within time. Unarranged overdrafts can often incur large fees.

PPI – Payment Protection Insurance, which is often sold with credit cards and loans without the applicant’s knowledge, is a pure profit add-on for bank’s services protecting customers from incurring fees if they miss loan payments. Many people can reclaim mis-sold PPI from us by filling out our simple form, and you could be owed thousands of pounds.

Rate – The level of interest charged by a lender i.e. interest RATE. The rate of interest you receive from a lender can be dependent on how risky they perceive you to be when lending you money.

Remortgage – Many people who want to change their mortgages to a better deal – without moving home – will remortgage. This will mean you have to have your home revalued and the money you borrow from the new lender will go towards paying off the money from the old mortgage.

Variable-Rate Interest – The opposite of fixed-rate interest. The rate on your loan or mortgage can increase and decrease in accordance to the rate set by the Bank of England. 






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Congratulations! You're one step closer to receiving your compensation for mis–sold Payment Protection Insurance.


If all details look OK you will receive a Claim Pack through the post, usually within 48 hours. If there are any issues we need to discuss one of our advisors will call you.


Either way you need to return your Pack as quickly as possible to prevent any delays with your claim!