Understand Your Finances with our Financial Jargon Buster

Our Financial Jargon Buster is here to simplify everything from APR to CCJs, so you feel confident managing your money.

A

Affordability Check

Affordability checks ensure you can repay a loan without sacrificing essential monthly expenses. Lenders review your income and outgoings to decide whether to approve the loan.

Annual Equivalent Rate (AER)

AER helps you compare how much different savings accounts or investments could earn over a year.

Annual Percentage Rate (APR)

APR, also called nominal or effective APR, is the annual interest rate for loans or credit cards. It represents the cost of borrowing, including fees, and helps compare loan offers. Lenders disclose the APR before you agree to a loan, though rates vary.

Arrangement Fees

Lenders charge arrangement fees to cover the cost of setting up loans, such as mortgages or car finance. These fees may also be called booking or completion fees.

Arrears

Arrears refer to overdue debt after missing one or more payments. The arrears amount is the total unpaid balance since the first missed payment.

B

Bad Credit

Bad credit reflects a history of missed or late bill payments, which lowers your credit score. It also indicates a higher risk of future payment issues. Lenders often check this when reviewing loan applications.

Balance Transfer

A balance transfer moves debt from one credit card to another, often to reduce interest rates or simplify payments. However, transfer fees may apply and are added to the balance.

Bankers Automated Clearing Services (BACS)

BACS is an electronic system for transferring money between bank accounts, commonly used for direct debits and credits. Payments typically take up to three working days to process.

Bank of England Base Rate

The Bank of England base rate is the interest rate it charges banks and lenders when they borrow money. This rate influences the interest rates on mortgages, loans, and other credit products.

Bankruptcy

Bankruptcy is a legal process that helps individuals or businesses unable to repay debts. It provides relief from some or all debts and is usually enforced by a court order.

Bank Transfer

A bank transfer moves money directly between accounts, often for payments or loans. It’s fast, free, and safer than using cash.

C

CCJ (County Court Judgement)

A CCJ is a court order issued when you fail to repay money owed to a lender or service provider. It can result from unpaid bills, parking fines, or credit card defaults. A CCJ negatively impacts your credit score and appears on your credit history.

Collateral

Collateral is an asset, like a house or car, used as security for a loan. If you fail to repay, the lender can sell the collateral to recover their money.

Consolidation Loan

A consolidation loan combines multiple debts, such as credit card balances, into one loan. This simplifies payments and can reduce monthly costs.

Cooling Off Period

The cooling-off period allows you to cancel orders or contracts within a set timeframe, usually 14 days.

Credit Agreement

A credit agreement is a written contract between a lender and a borrower. It outlines the terms for borrowing money to purchase goods, like a car, and the repayment plan.

Credit Check

A credit check reviews your financial history to assess your reliability as a borrower. Companies may perform this without your consent if they have a legitimate reason, such as a loan application.

Credit History

Credit history is your record of loan and credit repayments. Lenders use it, via credit reference agencies, to calculate your credit score.

Credit Reference Agency (CRA)

CRAs, like Equifax, Experian, and TransUnion, collect and store your credit history. Lenders use their reports to assess your creditworthiness.

Credit Report

A credit report compiles your financial history, including loans and repayments, to calculate your credit score. Lenders review it before approving or denying loans.

Credit Score

A credit score measures your financial reliability, helping lenders decide if you’re likely to repay on time. It considers factors like payment history and responsible credit use.

Credit Union

A credit union is a member-owned financial cooperative offering savings accounts and loans at competitive rates. It operates on the principle of “people helping people.”

D

Data Protection

The Data Protection Act regulates how organisations and government bodies use personal information, ensuring it is handled responsibly.

Delinquency

Delinquency occurs when a borrower is late or overdue on payments, such as for a mortgage, car loan, or credit card.

Direct Debit

A direct debit is an instruction you give to your bank, allowing an organisation to collect payments directly from your account on agreed dates.

Dividend

A dividend is a share of profits paid to members of a credit union or shareholders of a company, based on the amount they’ve invested or saved.

E

Early Repayment Charges (ERCs)

ERCs are fees charged by mortgage lenders when you repay part or all of your loan early. These fees compensate the lender for lost interest.

Equity

Equity is the difference between an asset’s value (like a home) and the debts secured against it. If debts exceed the asset’s value, equity becomes negative.

F

FCA (Financial Conduct Authority)

The FCA is a UK regulator ensuring financial markets operate fairly, protecting consumers and promoting competition.

Financial Ombudsman Service (FOS)

The FOS is a UK regulator that resolves disputes between consumers and financial service providers, established under the Financial Services and Markets Act 2000.

Financial Services Compensation Scheme (FSCS)

The FSCS is the UK’s deposit insurance and investor compensation scheme, protecting customers of authorised financial firms up to £85,000 if the firm fails.

G

Gross Income

Gross income is the total earnings from wages, salaries, profits, interest, rents, and other sources before taxes or deductions.

Guarantor

A guarantor is someone who agrees to repay a loan if the borrower cannot. This provides lenders with extra security and can help borrowers with poor credit get approved.

H

Hire Purchase (HP)

Hire Purchase is a way to buy goods, like a car, by paying in instalments. You only own the item after making the final payment.

I

Income Tax

Income tax is a tax on individuals or entities, calculated as a percentage of taxable income, with rates often increasing as income rises.

Inflation

Inflation measures the rate at which prices for goods and services rise, reducing the purchasing power of money over time.

Interest

Interest is the cost of borrowing money or the reward for saving it, usually expressed as a percentage of the amount.

Individual Savings Account (ISA)

An ISA is a tax-free savings or investment account available to UK residents, offering a limit on how much you can save each year.

Interest Rate

The interest rate is the percentage charged on loans or earned on savings, typically calculated annually.

Individual Voluntary Arrangement (IVA)

An IVA is a formal agreement to repay all or part of your debts through regular payments to an insolvency practitioner, offering more control over assets compared to bankruptcy.

J

Joint Account

A joint account is aN account shared by two or more people, often used by couples or business partners to manage shared finances.

L

Loan

A loan is a sum of money borrowed that must be repaid, typically with added interest, over an agreed period.

M

Mortgage

A mortgage is a loan specifically used to buy property, where the property itself serves as security until the loan is repaid.

Minimum Payment

The smallest amount you must pay on a credit card bill to avoid penalties, though paying more reduces your debt faster.

N

Net Income

Net income is the amount of money you take home after taxes and other deductions are subtracted from your gross income.

O

Open Banking

Open banking lets you securely share your financial data with trusted apps and services. This can help you manage your money better, offering more transparency and personalized tools for your finances.

Overdraft

An overdraft allows you to withdraw more money from your bank account than you currently have, up to an agreed limit, often with fees or interest.

Outstanding Balance

The outstanding balance is the total amount you still owe on a loan, credit card, or other financial obligation.

P

Payroll Deduction

This refers to an amount of money that is taken by an employer from an employee’s pay, for example, income tax and PAYE are all taken by payroll deduction.

Pension

A pension is a retirement fund that you or your employer contribute to, providing income after you stop working.

Personal Loan

Unsecured personal loans are loans that are not backed by collateral and typically have higher interest rates than secured loans.

Prudential Regulation Authority (PRA)

The PRA is a UK financial regulator that oversees the safety and soundness of banks, building societies, credit unions, insurers, and major investment firms to ensure they operate responsibly.

R

Repayment Term

The period of time agreed on, in number of months or years over which a loan is to be repaid back to the lender.

S

Savings Account

A savings account is a bank account designed to help you save money while earning interest on your balance.

Secured Loan

A secured loan is a loan backed by collateral, such as a house or car, which the lender can claim if you fail to repay.

Standing Order

A standing order is an instruction you give your bank to make regular, fixed payments to a specific person or organisation.

Saving Accounts

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