This Moneyfacts guide helps you to understand the terminology and jargon used with the loans industry. Hopefully this will make applying for a loan less daunting and enable you to get the best deal available to your personal circumstance.
APR is a term you will see on several different lending products, including credit cards, overdrafts and loans. Short for annual percentage rate, it's a legal requirement for the APR to be shown for these products so that an easier and fairer comparison can be made. Read more about what an APR is here.
This is very similar to APR and stands for annual percentage rate of charge. It does the same job as an APR, but is used for mortgages, including second charge mortgages (secured loans).
A bridging loan tends to be used as a last resort to tide you over in the short term to help secure a house purchase when you have not yet sold your own house. Beware: these loans are expensive. Commercial bridging loans are meant only to 'bridge' the gap before you sell a property, or secure longer-term finance once a project is completed.
A County Court Judgement (CCJ) is issued by a County Court for failing to repay a loan or outstanding debt. A CCJ will affect your credit rating and may affect your ability to get a loan or mortgage. CCJs can be enforced by bailiffs.
This is a loan taken out to consolidate debts (see debt consolidation below.) Find out how to deal with debt in our guide.
Consumer Credit Act
The Consumer Credit Act 1974 is the legislation that dictates aspects such as what information must be provided to borrowers before and during a loan, the terms of credit agreements, and calculations for APR. The Act requires that you are given full written details of the true interest rate (i.e. the APR) and in certain situations, you get a cooling-off period during which you can decide to change your mind and cancel the loan agreement. The Consumer Credit Act doesn't apply to mortgages or second charge mortgages (secured loans).
A credit rating is a points system used by banks and lenders offering loans and mortgages to estimate a person's creditworthiness and their risk potential. A record called a credit report or credit history is held on file by credit reference agencies documenting an individual's past borrowing and repayments. To compile this, they use public records, like whether you are on the electoral roll, have had a CCJ or have been made bankrupt. Read our guide on how to improve your credit rating for more information.
Credit reference agency
This is a company that compiles credit records of consumers and releases the information to companies offering credit terms (examples of such companies include Equifax and Experian). Most lenders will use such an agency during a loan or mortgage application. You have the legal right to request a copy of your credit report from one of these agencies, but there is usually a nominal charge for doing so.
Debt consolidation means to take out one loan to pay off several other loans or debts. A consolidation loan gives the security of more manageable monthly payments. However, this is dependant on your debt consolidation loan payments being lower than the total repayments of the debts being consolidated - through a lower interest rate, a longer repayment period or both.
Debt management plan
A debt management plan (DMP) is a repayment scheme offered by a debt management company. They will negotiate your repayments over several years to enable you to make payments to your creditors more affordable. Find out how to deal with debt in our guide.
Early repayment charge
An early repayment charge may be payable to the lender if you decide to pay off your loan early, before the term set when applying for the loan.
Financial Conduct Authority
All credit lenders and brokers must be authorised by the Financial Conduct Authority (FCA) to continue to do credit business in the UK.
This is also called a secured loan. Only homeowners can apply for these types of loan. This is because they are secured against your property. Take a look at secured loans to find out more about how these work.
This is the percentage at which interest is charged on a loan or mortgage. Depending on the type of loan, this can be fixed or variable. The advertised interest rate for a loan is known as the APR (or APRC for mortgages). Find our more about interest rates and APR in our guide.
A loan is where a lender provides a temporary money advance to a borrower, usually over a set period. Once a loan is accepted it then becomes a debt for the borrower.
Loan payment deferment
A loan deferment allows you to start your repayments later than after the first month of the agreement and usually ranges from two to three months.
Some loans let you take a break during the loan, for example, for one or two months each year. Some lenders will require the number or month of payment holidays to be decided at the application stage.
Payment protection insurance (PPI)
PPI is a type of insurance policy that is taken out to repay your agreed monthly loan amount if you are unable to make the payments, should you be taken ill, have an accident or are made redundant.
A personal loan – otherwise known as an unsecured loan – is taken out by an individual over a fixed term. This type of loan is available from a bank, building society or other financial institution without security. They are covered by the terms of the Consumer Credit Act. A lump sum will be loaned in return for you agreeing to make regular repayments, usually by direct debit. Personal loans are usually available from £1000 up to £25,000 (although some lenders will offer up to £50,000) and are repayable over a set period, usually between six months and five years. For more information, read our guide to personal loans, or to compare personal loans quickly, use our loan calculator.
The rate of interest you'll pay on borrowing is decided by your credit score and status. To allow you to compare products before applying (as you'll never know what rate you'll get until you're accepted), companies show a 'representative APR' in advertising. This is the advertised APR that providers expect a minimum of 51% of successful applications to be offered. So, if a loan is advertised as being 7.5% representative APR, this means that at least 51% of accepted applicants will get the rate of 7.5%, while others may get a different – probably higher – rate). Mortgage lenders will show a representative APRC, which will usually apply to all applicants who are accepted for a loan.
Secured loan (second charge mortgage)
A secured loan uses property, usually your home as s security for the sum you have borrowed.
They are also known as homeowner loans. Secured loans are usually used for those wishing to borrow larger amounts, usually of £10,000 more. It can be harder to find unsecured loans offering loans above this and almost impossible for those wanting to borrow more than £35,000. Secured loans for those with bad credit are also available including for those with County Court Judgements (CCJs). You will still need to meet the affordability requirements of the lender. Read more about how to find the best secured loans.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. For all loans, missing payments will have severe consequences and may make obtaining credit more difficult in the future.
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.