Understand the jargon

A | B | C | D | E | F | G | H | I | L | M | N | Q | R | S | T | U | V | W

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A

Arrears - An account is placed in arrears if you miss your payment date and fall behind with your repayments. You are legally obliged to repay the outstanding amount, as agreed at the outset of the arrangement.

Assets - An asset is anything owned by you or your company that has a monetary value, such property, land, vehicles, trademarks or investments. Secured lending products require you to offer your asset as a form of security against your loan; it can be seized by the lender should you fail to meet your repayments.

Annual Percentage Rate (APR) - The APR (Annual Percentage Rate) indicates the actual rate of interest, including all fees, charges and administrative costs, payable over a year. It is expressed as a percentage and, under the Consumer Credit Act, lenders are legally required to display APRs on all credit agreements.

Adverse Credit - Adverse credit typically describes a poor credit rating. When you apply for and use credit, such as a credit card, loan or mortgage, your application and repayment activity is logged by credit reference agencies for up to six years. You will be scored on the way you repay your loan; this is known as a credit rating or credit score. If you fail to keep up with repayments, pay less than agreed, receive a CCJ or are subject to bankruptcy, you will incur an adverse credit rating.

Arrangement Fee - An arrangement fee is an administration cost charged by lenders for setting up certain credit agreement. Business loans, mortgages and car finance agreements typically include arrangement fees.

B

B2B - Commercial finance products are classed as B2B or business-to-business transactions and are offered exclusively to businesses rather than individuals.

B2C - The term B2C or business-to-consumer refers to the direct selling from a finance provider to a consumer or end-user.

Bankruptcy - Bankruptcy occurs when a person or business fails to meet its financial obligations and can no longer settle any outstanding debts. Filing for bankruptcy will negatively impact your credit rating.

C

Credit Rating - A credit rating is used by lenders to determine your ability to meet your financial obligations. When you apply for and use credit, your application, repayment activity and any CCJ or bankruptcy notices are logged by credit reference agencies for up to six years. Lenders can obtain details of your credit history to evaluate your merit as a borrower. If you have a good credit rating, lenders will typically grant you more funds than if your rating is poor.

County Court Judgement (CCJ) - A County Court Judgement – also known as a CCJ – is issued by a County Court if a person or business fails to meet repayments on an outstanding debt. If the debt is not settled within an allotted time stipulated by the court, typically one month, the CCJ will be placed on the debtor’s credit record with credit reference agencies for up to six years.

Credit File - A credit file is a detailed account of the borrowing history of a person or business. The file is held with credit reference agencies and used by lenders to assess the credit worthiness of a borrower. You are able to review your credit file by contacting a credit reference agency, such as Experian or Equifax.

Credit Reference Agency - A credit reference agency is an independent body that securely retains detailed financial data of a person or business. These credit files document credit applications, financial activity and repayment behaviours. The three main credit reference agencies in the UK are Experian, Equifax and TransUnion.

Credit Search - Prior to processing an application for credit, lenders will review your credit history and rating via information held by credit reference agencies. This data is used to determine whether you are credit worthy and the amount you can borrow.

D

Default - To default is to fail to meet a loan repayment due date. Depending on the terms, some lenders can impose penalties should a default occur. A default on your account will adversely affect your credit rating.

Development Finance - Development Finance is a short-term loan used in the development of a residential property. It can be used to finance a new construction or the refurbishment of an existing property.

Debt Consolidation - Debt consolidation is the act of combining all your outstanding debts and transferring them to a single loan arrangement. Borrowers typically do this to lower monthly interest rates, extend repayment terms and make the debt more manageable.

E

Equity - The term equity is used to describe the value of an asset owned by you once any debts secured against it have been settled.

F

FCA - The Financial Conduct Authority, otherwise known as the FCA, is the regulator of financial services firms and financial markets in the UK.

Factor Rate - The factor rate expresses, as a decimal, the amount of interest a lender charges on a loan. To find out how much interest you will pay in total, multiply the factor rate by the amount of finance you wish to loan.

Financial Services Compensation Scheme (FSCS) - The FSCS protects the customers of authorised financial services companies operating in the UK should a firm fail to pay a claim against it. Insurance policies and brokering, deposits, investments and mortgages are covered under this scheme.

First Charge (Mortgage) - The primary loan taken out on a property is known as a first charge mortgage. Should an individual default on a mortgage payment, the lender providing the first charge mortgage will have the first claim on the funds raised from the sale of the property.

G

Gross Development Value (GDV) - The Gross Development Value (GDV) is a calculation used by property developers to estimate the value of a property on the open market under current economic conditions on completion of all building works. This tool is used on both new-build and refurbishment projects.

Guarantor Loans - Should you lack sufficient funds or have a poor credit rating to secure a loan, a third-party person – typically a family member – can act as a co-signer to your loan agreement. In doing so, they commit to repaying your loan on your behalf should you fail to do so.

H

Homeowner Loan - A homeowner loan enables property owners to borrow finance using their property as security against the value of the loan.

I

Individual Voluntary Arrangement (IVA) - An individual voluntary arrangement or IVA is an alternative to bankruptcy. Should you fail to meet your financial obligations, an individual voluntary agreement between you and your lender could be put in place, which enables you to repay all or part of your loan over a certain timeframe, based on what you can afford.

L

Lender - The lender provides the funds for and stipulates the terms of your finance agreement.

Loan Purpose - The reason why you are seeking the loan. Financial providers can offer funds for specific purposes, such as mortgages and car finance agreements.

Loan Term - The length of time in which the loan must be repaid.

Loan to Value (LTV) - The Loan to Value (LTV) is typically expressed as a percentage that represents the loan amount in relation to the value of asset against which it is secured. The LTV is typically associated with mortgage arrangements.

M

Mortgage - A mortgage is a secured loan taken out to purchase a private or commercial property. The property is offered as security against the loan.

Monthly Repayments - This term refers to the amount a borrower is required to pay each month with interest to reduce the loan amount.

N

National Association of Commercial Finance Brokers - The NACFB is the trade body for commercial finance brokers and lenders operating the UK who provide credit for businesses and property investors.

Q

Qualifying Criteria - To be approved for credit, borrowers must meet certain requirements stipulated by the lender, as a way for them to control risk. Basic qualifying criteria typically refers to age (over 18 years) and UK residency, for example. The qualifying criteria will differ depending on the product and lender.

R

Regulated - Regulated financial products must comply with regulations stipulated by the Financial Services Authority. Any complaints regarding the handling of these products can be referred to the Financial Ombudsman Service. Consumers who use regulated financial products are protected by the Financial Services Compensation Scheme.

S

Second Charge (Mortgage) - Should you have any equity in a property for which you already have a mortgage, you can offer it as security against a second loan, known as a second charge mortgage.

Secured Loan - A secured loan requires to you offer one or more assets, such as property, machinery, vehicles or trademarks, as security or collateral against the loan. Should you default on the loan, the asset may be seized by the lender.

SME - SME Finance comprises a range of products designed specifically for small to medium sized enterprises.

T

Total Amount Repayable - This the amount you will repay in total, including the value of the loan with interest, fees and any administration costs.

Typical APR - A Typical APR refers to the annual interest rate a certain percentage of applicants will pay on an advertised loan. Any remaining applicants will be offered a different rate than advertised.

U

Unsecured Loan - An unsecured loan does not require any assets to be offered as security against the finance agreement.

Underwriting - Underwriting is the act of assessing and verifying an applicant’s creditworthiness and the risks associated with lending them funds.

Unregulated - Unregulated financial products are not monitored by the Financial Conduct Authority and do not offer the consumer access to any statutory protection.

V

Variable Rate - As market rates change, so too do variable interest rates. These can fluctuate at any time during the repayment term of a loan.

W

Winding-Up Order - A Winding-Up Order is an instruction from the courts that forces a business into compulsory liquidation. The company’s assets are used to repay any outstanding debts.