Jargon Buster

 

Finance can often be confusing, especially with the amount of specific terms used by different financial organisations. We have developed a guide to all the main lingo, to help you understand exactly what is going on. Below are some commonly used terms and an explanation of what they actually mean.


Annual Percentage Rate (APR)

An APR is a percentage rate which is charged on borrowing each year. It allows you to work out the cost of borrowing money and also helps you to compare the cost of different borrowing options. The majority of credit agreements will show the cost of borrowing as an APR.

Arrears

Arrears occur when you fail to make a repayment by a scheduled date set out in a credit agreement. For example if you made a loan repayment late, the account would fall into arrears as you would be behind on your payments.

It is worthwhile knowing that arrears can affect your credit score as they show as a missed/late payment, and some lenders can charge you additional fees if you're in arrears.

Bank of England base rate

This is the interest rate that banks and lenders pay when they borrow from the Bank of England. It affects rates on saving and borrowing products for a customer. For example, if the Bank of England increased its base rate, it is likely that other lenders would pass on this increased cost by increasing their own interest rates on both borrowing and saving. The opposite would likely happen if base rate reduced e.g. cheaper borrowing and reduced return on savings. Base rate is altered depending on what is necessary for the economy, either to encourage or discourage spending. 

Bankers Automated Clearing Services (BACS)

BACS is a common way to transfer money from one bank account to another in the UK. This is what No1 CopperPot uses to transfer money to members. Transfers can take up to three working days to clear e.g. if you transfer money on the Monday it will clear on Wednesday.

Alternative payment transfers are CHAPS payments and Faster Payments. 

Bankruptcy

Bankruptcy is a way of ending your liability for debts that you cannot pay.  Any assets that you own may be sold to raise money to pay to your creditors. This can have serious consequences and should be research fully before considering this as an option. There's more information available on our web page here.

Cooling off period

This is a set period of time which you have to change your mind about a product or service, and either cancel it or claim a refund. In financial terms you can exit a contract during this period without acquiring a fee or charge. The statutory minimum cooling off period is 14 days. 

County Court Judgement (CCJ)

A CCJ is a court order and is registered against a person to instruct them to repay a debt. CCJ's can negatively affect your credit score and ability to obtain credit for up to 6 years. For more information on CCJ's click here. 

Credit agreement

A credit agreement is a legally binding contract made between a borrower and a lender. It outlines the rules of the lending, which include repayment terms, fees and interest rates. You will be given a credit agreement for loans, credit cards, and many other credit arrangements. The credit agreement will also include information about the cooling-off period. 

Credit reference agency

Credit reference agencies are independent organisations which securely hold financial data about individuals. They collect information about a persons credit history and make it available to banks, building societies, credit unions and other financial organisations. Organisations will access a persons credit file through a credit reference agency when they apply for credit, which helps them to make a decision. 

Credit search

A credit search is when a company searches for an individual using a credit reference agency. It compiles information from your credit report to give an insight into your financial situation. Lenders are likely to conduct credit searches when you apply for credit as this will help them to make their decision. 

Credit union

Credit unions were created to help members save and use these pooled savings to lend to members who needed to borrow. The idea is that as membership and savings grow, more members can helped. Surplus profit made from this borrowing is then shared amongst members each year in the form of an annual dividend, this is because credit unions are not for profit. Saving continues to be an important part of credit union membership as it helps members build financial stability alongside helping others to borrow.

Debt consolidation

Debt consolidation is bringing debts together and is sometimes a way to help manage debt. It usually consists of applying for a loan (or other credit arrangement) which totals existing debt, then using this new loan to repay and close all other credit arrangements. The idea is that the new loan is cheaper and save the individual money each month, and/or repay debt faster. More information can be found on debt consolidation here

Debt management plan

A DMP is an informal agreement between a debtor and a creditor whereby they come to an agreement in relation to repaying outstanding debt. You usually repay an amount every month which is divided between creditors, using a Debt Management Plan provider. More information can be found on DMP's here

Dependant

A dependant is an individual who relies on another (usually a family member) for financial support. This is typically children, partners, parents, or other relatives who you financially support within your household.

Direct Debit

A Direct Debt is an in instruction set up with a bank which authorises withdrawals to occur from a person’s bank account to another bank account. This is usually to pay bills or subscriptions.

Dividend

A dividend is a share of profits which is usually distributed to members or shareholders. The dividend can vary depending on the financial success of the organisation.In terms of credit unions, a dividend is a percentage which is paid on a members savings following the end of its financial year.

Early redemption charge (ERC)

An early redemption charge is a sometimes charged by a lender if you repay a loan or mortgage before the term previously agreed. These charges should be carefully considered if you are looking to settle a credit agreement in full prior to the anticipated end date, as it could be expensive to do so. 

Financial Conduct Authority (FCA)

The Financial Conduct Authority is a financial regulatory body in the United Kingdom. It is responsible for the functioning of the UK financial markets. The Authority aims to ensure honest and fair markets by protecting consumers, enhancing market integrity, and promoting competition. 

Financial Ombudsman Service (FOS)

The Financial Ombudsman Service (FOS) is an independent official body, established by Parliament, for settling disputes between UK-based financial companies and their customers. They resolve disputes partially and fairly and have the power to put things right.

Financial Services Compensation Scheme (FSCS)

The UK’s statutory deposit insurance and investors compensation scheme for customers of authorised financial services firms. This means that FSCS can pay compensation if a firm is unable, or likely to be unable, to pay claims against it. 

The FSCS protects your money up to £85,000 for all banks, building societies and credit unions that are authorised by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).

Gross Income

Your gross income is the total income from your employer without deduction of tax or other contributions.

Income tax

This is tax which is charged directly on your income. Most people in the UK get a personal allowance of tax-free income. As of April 2020, you’re entitled to earn up to £12,500 tax-free. If you earn over this, there are certain income tax brackets that you may fall into, how much you pay depends on which of the brackets you fall under. You can see the current rates of tax by viewing the governments website by clicking here

Individual Savings Account (ISA)

An ISA is a savings account where you can save tax-free. This means you are not required to pay any tax on your returns.

There is a restriction on how much you can save or invest in an ISA per tax year, which is known as your annual ISA allowance. There are a variety of different ISA's you can open depending on what you need such as savings accounts, investments ISA's, Help to Buy ISA's, Lifetime ISA's. You are only allowed to open one new ISA per tax year. 

Individual Voluntary Arrangement (IVA)

An alternative available for people looking to avoid bankruptcy. A formal and legally binding agreement between you and your creditors. An IVA freezes your debts and allows you to pay them back over a set period. Choosing an IVA can mean that up to 80% of your debt written off and the rest you pay back in affordable monthly repayments, with no added interest and no more legal action or hassle from your creditors. Any amount you still owe after the time is then written off.

Read more information on the different types of debt management here.

Interest rate

A rate decided and charged by a lender for the borrowing their money. Interest is calculated on the percentage of a loan or deposit and is paid periodically.

For saving accounts it is the rate your bank or building society will pay you for depositing your money with them. The money you earned for holding savings with them is the interest.

Open banking

The practice of sharing financial information electronically, securely, and only under conditions that members approve of. Information is shared directly from your bank to the company you chose to allow access. We use open banking with Credit Kudos at No1 CopperPot to make our loan process more efficient. 

Overdraft (arranged)

An agreement with an individual’s bank where you can overdraw on your bank balance up to an agreed limit. Your bank will charge you interest and sometimes fees. Interest rates charged on overdrafts usually range from 19% to 40%. 

Overdraft (unarranged)

When you overdraw on your bank balance without an agreement in place with your bank, or you exceed a pre-agreed limit. Your bank may charge you daily, weekly or monthly until you are no longer overdrawn.

Payroll deduction

When agreed amounts are deducted from an employees pay and distributed amongst agreed people. For example, Tax, national insurance contributions and pension. Savings and loan repayments with No1 CopperPot are made through payroll deduction if available in your force.

Power of Attorney (POA)

A legal document that gives authority for a nominated individual to be able to make decisions for you, or act on your behalf. This is used if you are no longer able to or no longer want to make your own decisions.

Prudential Regulation Authority (PRA)

A part of the Bank of England. It’s responsible for the prudential regulation and supervision of around 1,500 banks, building societies, credit unions, insurers and major investment firms. It sets standards and supervises financial institutions at the level of the individual firm.

Repossession

A part of the Bank of England. It’s responsible for the prudential regulation and supervision of around 1,500 banks, building societies, credit unions, insurers and major investment firms. It sets standards and supervises financial institutions at the level of the individual firm.

Secured loan

A loan that is secured against your assets to act as collateral to secure the loan. If you failed to repay the loan, the lender has the right to take the agreed assets off you to repay the loan. For example, a finance agreement with a car company is a secured loan. If you fail to make your payments they can seize the car from you to repay the loan.

Standing order

An instruction given to a bank by an account holder to make regular payments to the same person at the same time each month. For example, rent or mortgage repayments.

Unsecured Loan

An unsecured loan is a loan which isn't secured against your assets. For example, a credit card or an overdraft. If you failed to repay the loan, a company can't seize your assets to cover the cost.