Financial jargon sounding like riddles? Here's how to get clued up.

By Iona Bain
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Does financial jargon make you glaze over and fly straight over your head? Do you know your APR from your CCJ?

Not getting anywhere with all these big jargon words? Fear not. Here’s a handy guide to translating it.

Loans

Consolidated loanCan be a lifeline. A large loan taken out to pay off a number of smaller loans or debts, so stretched borrowers can manage repayments better and get back on track. But it is promoted by high-interest lenders as well as responsible ones.

APR or APRC: The annual cost of your borrowing. It takes account of interest, fees, and frequency of payments, so enables you to compare different loans.  But beware the Representative APR which is the rate used for advertising.  It only has to be offered to 51 per cent of all customers accepted for a loan.  What you need to know is your Personal Rate.  The headline rate on personal loans may also only apply to higher amounts on offer, not lower ones. Remember too that a credit card APR will not show you the rate charged for cash, which will be higher. If you need to know more, here is our in depth article that gives you everything you need to know about APR.

Hire Purchase: The traditional ‘buy now pay later’ way to buy big-ticket items such as a TV, sofa or car. You pay monthly instalments, and until they end the finance company owns your prize possession.

Payday loan: Once seen as a last resort, this is the tempting way to bridge the gap to payday when your cash runs out, these days at the click of an app. But to borrow £200 for two weeks will typically cost you from £27 to £33.

Secured loan: Not your average loan, this is when you offer your car, or more likely your home, as security. It means the cost will be lower, though it may be a condition of  being allowed to borrow. If you fall down on repayments, you stand to lose your wheels – or your roof.

Unsecured loan: Your typical loan, where the bank or other lender looks up your credit rating, sets your personal APR, and does not ask for any security.

Want to know more about what types of loans there are? Here's our in depth article. 

Credit Scores

Credit rating: This explains why loan customers are paying different rates. It’s all down to your personal credit score.  Banks and all other lenders rate you on a points system, based on your history of borrowing and repaying, for better or worse. They share information, so there’s no escape. Here is the full lowdown on credit scores.

Credit reference agency: These are the all-seeing spies who keep those credit records and release the information to lenders. When you apply for any loan or mortgage, an agency such as Experian or Equifax will be tapped for your credit report. You have the legal right to request a copy of the report, for a nominal fee.

Soft search:  A credit application that tests the water on what sort of product or rate you might qualify for, without leaving a ‘footprint’ on your credit file.

Hard search: A credit application that shows up on your credit file, even if you don’t go ahead and were only curious about what might be on offer. Here is an in depth look at the difference between hard and soft searches.

 

Payslip

NET : This is your salary that you take home before any tax or National Insurance is taken away.

GROSS : What you actually end up with in your bank account after any deductions on pay day.

PAYE : Stands for PAY AS YOU EARN, which means your employer pays the tax on your behalf. If you’re self-employed you need to do it yourself.

TAX CODE : This number shows how much tax you pay. If it’s wrong you could pay too much or too little.

P60 : Soon after the end of the financial year each April, you’ll get this statement of all your earnings and tax paid for the previous 12 months.

Others

PPI: Payment protection insurance. An insurance plan which adds to your loan cost, but makes your repayments for you if you are ill, have an accident or lose your job. PPI has a name after being sneakily sold for years by banks to people who didn’t know, or didn’t need it.  But good value plans are available.

CCJ:  One to avoid. It stands for a County Court Judgement (CCJ), issued by a County Court for failing to repay a loan or outstanding debt. Pick up one of these and your credit rating will suffer, reducing your chances of landing a loan or mortgage.

DMP: A Debt Management Plan (DMP).  Perhaps alongside a consolidation loan, this is a repayment scheme offered by a debt management company – at a price. It will set out a schedule of repayments to creditors, over a number of years, to try and clear the debt.The debt management company will negotiate on your behalf to freeze your interest but your creditors have no obligation to freeze it. There is also no real need for you to pay a debt management company to manage your debt as you are fully entitled to arrange alternative repayment plans with your creditors yourself. There are also charities that have free advice services and will arrange a DMP for you without a fee.

Early repayment penalty: If you want the flexibility to pay your loan off early, because things may improve or you have some cash coming down the line,, find out whether there is a penalty. Lenders often like to tie you in.

Top Takeaway

Never let anyone bamboozle you with terms you don’t understand. Ask for an explanation, or look it up. Your money is too important to trust to jargon.

 

By Iona Bain

Iona is the author of Spare Change, an inspiring, down-to-earth handbook for the compulsive spender, budget-phobe or anyone that just wants to improve their financial savviness. She writes regularly for the Times and Herald newspapers and has also appeared in the Telegraph, Independent and Daily Mail. When not writing, Iona loves writing and playing music - her songs can be heard at soundcloud.com/ionabain.

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Representative example for a loan of £4,000 for 24 months at an interest rate of 15.5% APR fixed. In this example the total amount payable (including interest and fees) would be £4633.57 and your monthly repayments would be £193.07.

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