Glossary

Sometimes it's impossible to avoid financial terms. So, we explain the more common ones.

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Account holder - the person who has a personal loan account.

Annual Percentage Rate (APR) - an interest rate designed to show you the total annual cost of getting credit. It should include all the interest and charges payable by you as a condition of taking the loan. Where taking Payment Protection Insurance is a condition of taking the loan, this should also be included in the APR. From 31st October 2004, credit card providers are required to quote typical APR values. The typical APR is the APR that 66% of customers applying for the providers credit card can expect to get.

Applicant - you become an applicant when you complete and submit an application form for a personal loan.

Arrangement Fee - the fee payable to the loan provider by you (the applicant) to open the account.

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Brand - the name given to the loan and other products you can compare in this site. For example, Egg, Woolwich and Hamilton Direct are all brand names. Brands have also been grouped into the categories on this site:
Building Society or Bank eg. Lloyds TSB, Nationwide, Bank of Scotland
Finance House eg. Paragon, Lombard Direct
Internet Company/Bank eg. Egg, Marbles, Smile
Other Finance eg. Insurance, Direct Line, Frizzel
Non-Financial eg. Supermarkets

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Charge card - a payment card that requires the total bill to be paid by a specific date. You are not allowed to carry an account balance from one month to the next and no interest is charged.

Charge-off - the removal of an account from a loan provider's books. When an account is charged off, the loan provider absorbs the outstanding balance as a loss. Charge-off is also referred to as Write-off.

Consumer Credit Act (CCA) - The Act which defines how personal loans may be advertised, and what rules need to be followed by loan providers in the presentation of loan features such as the interest rate and typical APR that are applicable. The Act also covers the information that needs to be available to the consumer such as product terms and conditions.

Credit Reference Agency (CRA) - An agency that gathers and maintains information on the debts and repayment records of individuals and businesses. CRAs prepare reports that are used by personal loan providers to view an applicant's credit history. There are two such agencies for consumer credit in the UK - Experian and Equifax.

Credit card - a plastic payment card that enables you to make purchases and to withdraw cash up to an agreed limit. The credit can be settled in full by the end of a specified period or can be settled in part. The balance is treated as extended credit and interest is charged on that amount. You are sometimes charged an annual fee.

Credit scoring - the process by which your credit worthiness is checked. Weights or 'scores' are associated with your personal attributes, such as your income and the time spent at your current address. These 'scores' are added to give a total credit score. Each total credit score is associated with a prediction of how likely a person with that score is to default. The loan provider then checks this score against the minimum required to be accepted for their loan, determining whether they accept you or not.

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Debit card - a plastic payment card linked to a bank or building society current account. It is used to pay for goods and services by immediately debiting your account.

Debt consolidation - the process of combining all outstanding debts in one loan account. For example, you may have an existing loan with a balance of £2,500, a credit card balance of £1,000 and a store card balance of £500. These could all be consolidated into one loan of £4,000. The purpose is usually to lower monthly repayments, through either lower interest rates on the new loan, or lower repayments from an extended repayment term, or both.

Default - non-payment of an account according to the terms of the loan agreement. If you are declared in default, your account may be subject to higher interest rate and other charges. Failure to keep up with repayments may result in the fact being registered at the two main consumer credit agencies in the UK- Experian and Equifax. This may reduce your chances of obtaining credit in the future. If the loan is secured against your home, your home may also be at risk.

Deferred payment - delayed payment. Also referred to as a deferred start, this facility allows you to delay the date on which the first repayment is due. The deferred period could be from one to three months, meaning a loan opened on the 1st January may not require repayments to start until 1st April.

Direct debit - a pre-authorized debit on the payer's account initiated by the payee. Most loan providers would require you to set up a direct debit to make the monthly repayments on the loan.

Discounted Rates - a reduced rate offered for a pre-defined period, often used by loan providers as an added incentive to apply for a loan.

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Early repayment charge (ERC) / Early settlement penalty - the charge payable to some loan providers should the loan be repaid in full before the full term of the loan has expired. For example, an arranged loan over 36 months may incur an ERC if it is repaid after 24 months, or any point before the 36 months has been reached. The average ERC can amount to the equivalent of 2 months interest.

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Fraudulent application - an application where false information has been used to illegally obtain a loan.

Flexible repayment - allows you to vary monthly payments to fit temporary changes in your circumstances. You can pay off some of the loan amount in months where you have excess cash (for example, as a result of a bonus or extra commission), or you can reduce payments, or even withdraw cash, when you need extra funds. Not common on dedicated car loans.

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Gross Annual Income - Your Annual Income before any Tax deductions but excluding bonuses.

Guaranteed loan - a term commonly used in direct marketing campaigns by loan providers. Essentially, loan providers conduct a credit score on their existing customer base before targeting these customers in a mailing campaign. The loan company then knows that all applicants targeted qualify before they apply. The customer also has the knowledge they will be approved. The aim is to improve take-up rates from direct mailing campaigns.

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Helpdesk - a service provided by an organization to provide support during and after the application process.

Household income - the total income of all members of a household. It is used by loan providers in evaluating applications for joint personal loans.

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Interest rate - the percentage to be paid by you on the capital borrowed. Interest rates vary from loan provider to loan provider. A standard calculation of the total cost to you of borrowing money is presented as Annual Percentage Rate (APR) charge. You can use APR (or typical APR) to compare the cost of various loans.. The APR will include the interest rate charged, and any other charges that are associated with taking the loan.

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Joint credit - credit issued to a couple based on the assets, income and credit history of both people. Both parties are responsible for making repayments according to the terms and conditions of the loan.

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No Terms

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Loan application form - a form that must be completed by you to become a personal loan customer.

Loan Provider - a bank or other financial institution that offers personal loans.

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No Terms

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Net Annual Income - Your Annual Income after Tax deductions and Pension and Health contributions but before personal expenses like Mortgage or Rent payments and Utility bills.

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Online access - the ability to access your personal loan account via the Internet.

Online decision - the ability of the loan provider to issue an automated decision back to the applicant via their web browser or email address.

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Payment protection insurance (PPI) - a policy that covers personal loan debt should the loan customer lose his job, die or become disabled.

Penalty rate - a fee payable by you for making late payments as defined in your personal loan agreement. The penalty rate will normally be a few percentage points higher than your loan's standard APR and can go into affect after a single late payment.

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No Terms

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Redemption Penalty - also known as Early repayment charge (ERC) is the charge payable to some loan providers should the loan be repaid in full before the full term of the loan has expired. For example, an arranged loan over 36 months may incur an ERC if it is repaid after 24 months, or any point before the 36 months has been reached. The average ERC can amount to the equivalent of 2 months interest.

Repayment holiday/break - a pre-agreed point in time where you are allowed to skip a monthly repayment. Usually a maximum of one a year, often at Christmas.

Repayment period - also called Loan Term, this is the time it takes to pay back the loan. A shorter period means higher monthly payments (there are fewer months over which to spread them), but less interest paid in total on the loan.

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Secured loan - loan providers may offer lower interest rates if you secure a loan against your home. This means the lender will have a claim against your home if you default on the loan payments.

Standing order - A regular payment of a specified amount to a named payee, made by a bank on your instruction.

Store card - also known as retailer card. A plastic payment card limited in use to a specified retailer or group of retailers.

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Term - Also called repayment period, this is the time it takes to pay back the loan. A shorter period means higher monthly payments (there are fewer months over which to spread them), but less interest paid in total on the loan.

Terms and conditions - the 'rules' that you and the loan provider agree to abide by, should you take up the offer of a personal loan. You must formally accept these Terms and Conditions, in the form of your signature, before any loan account can be opened for you.

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Unsecured Loan - most personal loans are unsecured loans. This means that the loan provider does not have a particular asset, such as your home, to reclaim if you should stop payments on the loan before it was paid back. However, the lender may still have a rightful claim on any of your possessions up to the loan amount should you not be able to repay the loan.

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Value-added service - additional services available to you as a result of taking up a loan or other account. These are offered by the loan provider to enhance the value of the loan to you.

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Write-off - the removal of an account from a loan provider's books. When an account is written off, the loan provider absorbs the outstanding balance as a loss. This is also referred to as a "charge-off".