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what-do-the-terms-mean?

Financial terminology can be challenging – there are so many terms out there that it can sometimes seem like you are comparing apples to oranges. Hopefully with our terminology glossary below you’ll be able to understand the key terms that are used when looking at unsecured loans.

  • Annual Percentage Rate (APR) – Interest rate plus any charges you pay on top of the total loan amount. This is a good term to know if you are comparing credit and loan offers.
  • Arrangement or Application Fee –  One-off fee the borrower might need to pay for the loan to be arranged. This differs from lender to lender.
  • Base Rate –  The fixed interest rate that is set by the Bank of England. This is the lowest possible rate that any lender will charge interest.
  • Capital Amount – The total amount of money that you are borrowing.
  • Credit History – A comprehensive record of your financial borrowing history. This will contain details of any defaults or late payments you have on previous loans or credit.
  • Credit Report – This is another term for ‘Credit History’.
  • Credit Rating – A significant factor when assessing your worthiness and ability to repay and manage any debt you have. A good, or high credit rating, indicates a lowered risk to the lender and in most cases means you will be offered a low Annual Percentage Rate (APR). If your score is low, it is likely that you will be offered a higher APR.
  • Credit Score – This is another term for ‘Credit Rating’.
  • Credit Reference Agency – Any company that compiles credit scores and histories and individuals and release them to lenders to help them make a decision about credit rating and eligibility for a loan. Agencies include Experian and Equinox.
  • Debt Consolidation – Combining a number of current debts in to a single loan.
  • Early Repayment Charge – If you choose to repay your loan early you might be required to pay a one-off fee.
  • Fixed Interest Rate – Throughout the period of a loan you will have a set rate of interest that will not change.
  • Gross Income – Your personal income before any tax is deducted.
  • Inflation – The increase in price of services and goods over a set time period.
  • Interest Rate –  The amount you have to pay the lender on top of the amount you have borrowed.
  • Loan Agreement –  The terms and conditions that are set between a borrower and lender at the beginning of the loan term.
  • Loan Calculator –  A tool that can be access online that easily estimates how much you will repay over the lifetime of your loan, taking in to account the interest rate and the period of the loan.
  • Monthly Repayment –  How much the borrower will pay to the lender each month including all interest and capital amount.
  • Overpayments –  Any payments above the monthly repayment amount that was agreed at the beginning of the loan.
  • Purpose of Loan – What the loan will be used for e.g. for a new car, holiday or medical treatment.
  • Repayment Holiday – A period of time where the lender agrees to let the borrower take a break from repaying their loan.
  • Secured Loan – For borrowers with a guarantee – usually in the form of a home. This is normally used for large loans over £20,000. Any guarantee you put up will be at risk if you cannot repay your instalments.
  • Total Amount Repayable –  The total sum of the interest charged plus the capital amount borrowed.
  • Unsecured Loan – A loan that is not secured by any guarantee or other asset. This limits the amount of money borrowable with lenders normally offering a maximum of £25,000 that is unsecured.