March 30, 2023

Glossary Of Consumer Finance Terms

a glossary of numerous terms utilized in the consumer finance industry.

A Acceptance Rate is the proportion of customers who are approved for a credit card or loan. The advertised rate known as the Typical APR must be offered to at least 66% of applicants (see “Typical APR” below).

The annual interest rate on a loan or credit card balance is known as the annual percentage rate, or APR. Potential customers are able to compare lenders thanks to this. Lenders are required by law to disclose their APR under the Consumer Credit Act.

Arrears are any missed payments on a loan, credit card, mortgage, or other type of debt. The borrower is obligated by law to pay any outstanding balances as soon as possible.

Arrangement Fee: This fee typically covers the costs of setting up a mortgage, such as administration.

B Base Rate: The Bank of England’s interest rate. The Bank of England charges banks this rate for lending money. A bank’s interest rate on a loan or mortgage is directly influenced by the base rate and how it might change in the future.

A loan designed specifically for a business and typically based on the company’s past and likely future performance are known as business loans.

C Car Loan: A loan made specifically to buy a car.

The majority of businesses in the consumer credit sector are represented by the Consumer Credit Association (CCA). Members include consumer groups, financial institutions, financial-focused media, the government, and local authorities. Members are required to adhere to a code of business ethics and practice after signing a constitution.

County Court Judgement (CCJ): A person who hasn’t paid off their debts can get a County Court Judgement (CCJ). A CCJ will have a negative impact on a person’s credit history and may even prevent them from getting credit. A CCJ stays on a person’s credit report for six years. By paying off the CCJ in full within one month of receiving it, you can avoid this major negative mark from appearing on your credit report. No information about the CCJ will remain on your credit report.

A credit crunch is when lenders simultaneously reduce their lending due to a shared fear that borrowers will not be able to repay their debts.

Credit File: Information about a person’s credit and borrowing arrangements that is kept by credit reference agencies like Experian, Equifax, and CallCredit. When considering a credit application, lenders check the Credit File.

Companies that keep records of individuals’ credit and borrowing arrangements, including amounts owed, with whom, and payments made, as well as any defaults, CCJs, arrears, and other occurrences

The Lender conducts a comprehensive credit search with the credit reference agencies.

D Debt Consolidation: Using a loan or credit card, transferring multiple debts into a single one.

When a regular debt payment is missed, this is called default. A default will show up on a person’s credit report, which will hurt their chances of getting credit in the future.

The main piece of legislation governing the use of personal data in the UK is the Data Protection Act, which was passed by Parliament in 1998. Individuals’ personal information cannot be shared directly with other institutions or businesses by lenders.

E Early Redemption Charge: Lenders charge a fee if a borrower pays off their debt earlier than the agreed-upon term.

Equity is the property’s value after paying off any loans, mortgages, or other debts. the sum of money a person would receive if they sold their home and paid off all of the debt on it.

F The Financial Conduct Authority, also known as the FCA, is the government-appointed body in charge of regulating the financial market.

First Charge: A property’s mortgage. When a property is sold, a lender with first charge will use the proceeds from the sale to pay off their mortgage or loan first.

A fixed interest rate is one that will never change.

H Homeowner Loan – Also known as a secured loan in common usage. Only those who own their own home are eligible for a Homeowner Loan. A second charge on the property will typically serve as the loan’s security against the property’s value.

I Instalment Loans are loans that are paid back in stages over time. The repayment amounts and timing may be flexible depending on the lender.

J Joint Application: A loan or other form of credit application submitted by a couple rather than a single person, such as a husband and wife.

L Lender: The company that offers the mortgage or loan.

The purpose for which the loan was obtained is called the loan purpose.

The loan’s repayment period is known as the loan term.

Loan to Value, or LTV, is a percentage that is typically associated with a mortgage. This represents the loan amount in relation to the property’s total value. For instance, a person might be offered a mortgage with a LTV of 90% on a $100,000 property. The offer in this instance would be 90,000.

M Monthly Repayments: The monthly payments, including any interest, made to settle a loan.

A mortgage is a loan taken solely to finance the acquisition of a property, typically a home. The property is offered to the Lender as security.

O Online Loans – Although the majority of loans can be obtained online. The development of technology that enables a loan application to be processed more quickly than with more conventional methods has been made possible by the Internet. A loan application, agreement, and deposited funds can all be completed in as little as 15 minutes in some instances.

P Payday Loan: A cash advance for up to 31 days that you have to pay back on your next pay day. Due to their shorter duration, payday loans typically have a high APR.

Payment Protection Insurance (PPI) is insurance to cover debt repayments in the event of a borrower’s inability to make their payments due to a variety of circumstances, such as a job loss, illness, or accident.

A general loan with varying amounts and for any purpose that can be given to an individual based on their credit history.

Price for Risk: Lenders now offer a variety of interest rates based on a borrower’s credit score. A person with a low credit score is considered to be high risk and will likely receive a higher interest rate as the lender takes into account the possibility that they will miss payments. On the other hand, a person with a good credit history and a high credit score is considered low risk and will receive a lower interest rate.

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