Financial Jargon Buster

Complicated jargon can make the financial world seem confusing or inaccessible. We understand that many people need a little help deciphering financial language, and it’s important to enter an agreement or commitment fully understanding the details.

To help you with the common terms and their meanings, we’ve put together a financial jargon buster.

AER (Annual Equivalent Rate)
AER is the rate of interest you’ll earn on savings and investments after a year.
APR (Annual Percentage Rate)
APR represents the cost of borrowing money. APR can include the interest rate as well as any charges.
A balance is the amount of money held in your current or savings account, or the amount of money you currently owe on your credit card or loan.
People may file for bankruptcy if they are unable to pay their debts and owe a large sum of money. It means your finances are taken under the control of an ‘official receiver’, which is an officer of the court who manages your claim. Filing for bankruptcy may result in assets being sold to help repay the debt. If you are facing financial problems, it can help to contact the National Debtline or the Citizen’s Advice Bureau for financial advice.
CCJ (County Court Judgement)
If you fail to make repayments, lenders can try reclaiming the money owed via the county court. A judge issues a CCJ setting out the terms in which you have to pay back the money. A CCJ can stay on your credit report for up to six years.
Compound Interest
The interest percentage rate is applied to the most recent sum rather than the original balance. This includes any interest earned over the month or year. When compound interest is applied to borrowed money, if no repayments are made, the outstanding balance would increase by more than it would if you used simple interest.
Credit is an agreement where you borrow money to obtain goods or services now, with the promise to repay in the future. A credit agreement usually includes an interest charge.
Credit Card
A card issued by a bank, lender, or credit card company that allows you to purchase goods or services on credit up to a specified credit limit. You will have to pay this money back, normally with interest added, however if you make your monthly repayments in full and on time you may not have to pay interest, while some credit cards may have an interest free period. Credit cards can also be used to withdraw money, but this can often result in an additional fee. If you exceed your credit limit you may also be charged a fee, and your credit card could be refused.
Credit Report
A credit report is a record of your credit history. It includes your current and previous addresses, history of repayments, county court judgements or bankruptcies, any financial associates (individuals with whom you are financially linked, i.e. via a joint credit application such as joint mortgage), and other financial commitments you have.
Credit Reference Agency (CRA)
A CRA is an agency that receives credit-related information about consumers and businesses. Different lenders and creditors may use a range of services from different CRAs. They often use this information to help them determine whether, and under what terms, they will lend someone money.
When money is taken out from your account, it has been ‘debited’ from that account.
Debit Card
A card linked to your bank account that you can use to withdraw or spend money from your current account.
Direct Debit
An instruction for your bank that authorises an organisation to collect payments from your account, normally to pay off a regular bill. The amount and frequency can vary, depending on the organisation you are paying.
Financial Adviser
A company or an individual who evaluates your situation and recommends specific financial products. Some advisers offer information and recommendations on a limited range of products depending on the firm they work for, while others can cover the whole financial market. Financial advisers should be regulated and approved by the Financial Conduct Authority.
Hire Purchase Agreement
A credit agreement that lets you pay for an item in instalments, where you don’t own the item until you have made the final payment. You cannot sell the item until it has been fully paid off, and if payments are missed, it could be repossessed. Hire purchase agreements are commonly used for buying cars.
Interest is a percentage of money that is added to the original sum. For example it could be money you earn in a savings account, or money you pay to take out a loan.
Interest Rate
The rate at which interest is paid, either by the bank into your savings or by you to the lender. It is normally given as a percentage.
ISA (Individual Savings Account)
A savings account that doesn’t require you to pay tax on interest earned on amounts up to £20,000. You can only open two new ISAs each year – one cash ISA, and one stocks and shares ISA.
You will go into your overdraft if you withdraw or spend more than the total balance in your account. You can ask for an arranged overdraft where the bank will lend you money for a period of time at an agreed interest rate. If you enter your overdraft without authorisation, the bank may charge a fee and a higher interest rate on the money you owe.
PIN (Personal Identification Number)
A private number you use in shops and at ATMs as a form of security when you use your debit or credit card.
Secured Loan
A secured loan is tied to an asset of yours as a form of security – if the loan repayments aren’t made, the asset could be repossessed.
Standing Order
An instruction you set for your bank to make regular automatic payments from your account to another individual or organisation. You control the amount of money being paid, the frequency it is taken, and the duration of the payments.
Store Card
A credit card that you can only use at a particular company or chain of shops.
Unsecured Loan
A loan that isn’t tied to an asset for security. If repayments are missed the lender cannot repossess any assets, but they may take legal action, such as a County Court Judgement.

Next Steps

Recognising the many technical terms can help you fully understand the details of your own finances, from the difference between a standing order and a direct debit to the significance of your credit report.

If you’d like to learn more about your credit history and creditworthiness, you can do this online with your Equifax Credit Report & Score, which is free for 30 days and £14.95 a month thereafter.

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