A Guide to Financial Jargon
Picking the right loan for you can be tricky enough without feeling flummoxed by the range of financial jargon surrounding these products.
So to help, here are some of the key loan terms explained:
APR: This stands for Annual Percentage Rate and is used on lending such as credit cards, loans and mortgages. The purpose of an APR is to show the total cost of borrowing over the period of an average year so, as well as interest, the figure includes upfront fees and charges. This makes it easier to compare deals like for like.
Car loan: This is a short-term personal loan taken specifically to buy a car. It works in a similar fashion to standard personal loans, with repayments subject to interest over a fixed number of years.
CCJ: This stands for a County Court Judgement (CCJ). It is issued by a County Court for failing to repay a loan or outstanding debt, and will have a negative impact on your credit rating and may affect your ability to get a loan or mortgage.
Credit rating: This is the ‘score’ given to you depending on your personal credit history. So if you’ve always kept up repayments on any form of credit you’ve had, you’ll have a good credit rating, whereas if you’ve failed to meet payments or, say, have a CCJ against your name, your credit rating is likely to be poor.
Debt consolidation loan: This is one large loan taken out to pay off a number of loans or debts, so borrowers can manage their repayments and get back on track.
Early repayment penalty: This may be charged by the lender if you decide to pay off your loan early, before the term set when applying for the loan. It usually applies to mortgages.
Hire Purchase: A way of buying goods, such as a car, without the total cost to hand, and making instalments over a certain time period.
Payday loan: A short-term small loan – of, say, £100 over two weeks – with a typically very high interest rate as an advance on your salary payment.
Secured loan: This is a personal loan secured against an asset, such as your home. Given they come with security – so if you fail to make repayments your home could be at risk – the interest rates tend to be lower than for unsecured loans.
Unsecured loan: This is a personal loan taken out by a borrower over a fixed term, and available from a bank or building society, without security. You agree to borrow a lump sum and make regular repayments to the lender.
Whatever financial product you’re choosing, it’s important to understand the finer detail to make sure you’re picking the right one for you – and know what you’re signing up for, so make sure you get to grips with the jargon.
Sunniva is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.