What’s this jargon?

APR

stands for Annual Percentage Rate: this is the calculation of how much a loan would cost, including interest and fees, if borrowed for a whole year, expressed as a percentage of the original amount borrowed.

For short-term and payday loans, it is not a particularly useful figure because these loans are only available for much shorter periods and you may find it more informative to consider the total amount payable when considering the cost of a short term loan.

Representative/Typical APR is an APR figure that lenders use for advertising purposes, e.g. on their website. This rate must be available to at least half of the lender’s clients but it is worth bearing in mind that different lenders will often have different loan amounts or periods for their own example, so it wouldn’t be a good idea to directly compare lenders on the basis of just this metric.

Arrears

money that is owed and should have already been repaid; to be in arrears is when you owe money past the date when your repayment was originally due and you have not put in place an alternative arrangement with your lender

Balance

for a credit product, e.g. a loan, this is the amount that is owed

Cash advance loan

another name for a payday loan

CCJ

stands for County Court Judgement: this is a court order that can be registered against you if you fail to repay money that is owed and a default has already been registered against the debt.

A CCJ will remain on your credit file for 6 years.

Credit check

also known as a credit search: this is when a third party looks at the information on your credit file. Lenders will use this information to help them decide whether they should approve you for a loan.

Credit file

also known as a credit report: this is an online database

• personal information, such as your address and previous addresses
• details of your present credit commitments, such as a mortgage, loans, bank accounts and mobile phone contracts
• historical payment records, including how you’ve been paying your bills, and it will show any late payments, CCJs or if you’ve been bankrupt etc.

Certain information is excluded such as your current account balance, salary, savings accounts, student loans and council tax arrears, for example.

Credit history

also known as a credit report: this is an online database

• personal information, such as your address and previous addresses
• details of your present credit commitments, such as a mortgage, loans, bank accounts and mobile phone contracts
• historical payment records, including how you’ve been paying your bills, and it will show any late payments, CCJs or if you’ve been bankrupt etc.

Certain information is excluded such as your current account balance, salary, savings accounts, student loans and council tax arrears, for example.

Credit rating

also known as your credit score: this is influenced by your credit file, so each Credit Reference Agency gives you their own score based on the information they hold about you (which can be different) and their own systems.

Your credit rating influences how likely you are to be accepted for credit products. You may also be offered lower interest rates if you have a better credit score.

• https://www.creditkarma.co.uk/ (for TransUnion)
• https://www.clearscore.com/ (for Equifax)
• https://www.experian.co.uk/ (for Experian)

Credit Limit

this is the maximum amount a creditor will offer to lend you. Your credit limit may increase with a lender if you are a regular customer and have a good credit history.

Creditor

any person or organisation providing credit

CPA

stands for Continuous Payment Authority: this is a type of recurring payment, similar to a direct debit, where you give a company permission to take money from your bank account on a regular basis. You give them your card details and the company, such as your payday lender, collects money when it is owed.

Creditworthiness

this is a lender’s judgement of a customer as to whether they are likely to repay the money borrowed. The evaluation will be based on multiple factors including if the customer has failed to repay debts in the past

Debt Collector

this is a third-party company employed with the specific task of collecting unpaid debts

Debt management company

this is a company that offers debt advice to people in financial difficulty and can deal with lenders on a debtor’s behalf regarding alternative repayment arrangements. Some charge fees and others, such as StepChange debt charity, offer their services for free

Debt management plan

also known as a DMP: this is a repayment plan produced for a debtor with the help of a debt management company. It should include all of the customer’s outstanding debts.

The debtor’s income and expenditure is assessed and their disposable income is compared to their level of debt. The debt management company can then offer affordable and proportionate repayment proposals to all of the customer’s creditors.

A debt management plan will appear on your credit file.

Default

to default on a loan means to fail to make the repayment, but:

a default is a record that can be placed on your credit file if you fail to repay a loan or agree an alternative repayment arrangement with your creditor and the account remains overdue for a significant time.

A default will remain on your credit file for 6 years.

Default fee

also known as a missed/late payment fee: this is a one-off charge applicable when a loan is not repaid on or before the originally agreed repayment date. Different lenders will charge different amounts, or may not charge a default fee at all, but there is a regulatory cap on such fees for payday loans of £15.

Default notice

this is a letter sent by lenders to customers whose loans have been overdue for some time, to warn them that they intend to record a default on their credit file. The default can be avoided if the account is paid within 14 days or the creditor allows you to set up an alternative payment arrangement.

Disposable income

this is the amount of money a person (or household) receives minus taxes paid, usually considered on a monthly basis. It is the total amount available for saving or spending

Discretionary income

is how much money someone has left after their necessary living expenses are deducted from their disposable income

Direct Lender

as opposed to a credit broker: a direct lender makes lending decisions and issues loans directly to the customer, whereas a broker may have a similar looking website with an application form, but is actually a service to match you up with possible lenders and can sometimes result in unwanted marketing contact from numerous third party lenders

this is an option offered by some lenders for short term loans. Some may charge a fee for early repayment whereas others will let you repay before the agreed date and only pay the interest accrued over the time that you had the loan.

Extension

also known as a rollover: this is when you change your repayment date to a later date, agreeing to pay the appropriate interest for the longer period and possibly a default fee. The FCA requires that payday lenders only allow borrowers to extend a loan a maximum of twice. Lenders may require you to repay the current interest on a loan before extending it.

Extending your loan has a lower adverse effect on your credit score as opposed to leaving a loan to fall overdue.

HCSTC

stands for High Cost Short-Term Credit: this includes payday loans, as well as other products like overdrafts and door step lending

Instalment Loan

this is where you repay a loan over a number of repayment dates. The repayment amounts may be the same or may differ between instalments.

Interest

the interest on a loan is the amount of the total owed which accrues (i.e. accumulates) on top of the original amount borrowed as it is added regularly over a period of time

Interest rate

this tells you how much interest is to be added and how quickly/often. It is the % of the balance that is regularly added on to the total amount owed, usually expressed on a per annum (p.a.) i.e. yearly basis. Note that for most payday loans interest will actually be added to the balance daily.

a fixed interest rate means the rate at which interest is added cannot change over the period of the loan, so you can be sure how much will be owed on any particular date

Income & Expenditure form

this is a breakdown of your income, including wages and any benefits you receive, and expenditure, usually broken down into areas such as rent/mortgage, bills, food, travel etc.

A form like this is used in loan applications to help lenders judge the affordability of a loan and also when debtors are in financial difficulty and need to assess how much they can afford to repay to creditors in reduced payments.

IVA

stands for Individual Voluntary Arrangement: this is a legally binding agreement for people with over £10,000 worth of debt who do not believe that they can realistically pay off everything that they owe. An IVA means all balances must be frozen and a payment schedule agreed which allows the debtor to repay as much as they can reasonably afford over a set period, usually 5 years.

Loan agreement

this is the contract between the lender and the borrower containing all the terms and conditions which apply to your loan

Loan principal

this is the original amount borrowed

Loan term

also known as the loan period: this is the agreed length of time over which a borrower will have their loan

Payday Loan

a small loan typically with a high interest rate, intended to be repaid when the borrower receives their next salary

Reconsideration

a customer can request that a lender reconsider their loan application if they object to the decision to decline their application being based on automated credit scoring. Lenders may reconsider the outcome of an application if the customer can provide sufficient evidence to justify why the loan is affordable, for example by providing copies of their bank statement.

Repayment Plan

this is when a lender typically agrees to freeze a customer’s balance and accept an alternative loan repayment arrangement when the customer is in financial difficulty and cannot fulfil the original loan agreement.

A repayment plan will show on your credit file.

Rollover

another name for an extension

SECCI

stands for Standard European Consumer Credit Information: also known as Pre-Contract Credit information: lenders must give you a copy of this during the application process for a loan to explain the key features of the product.

This information should not to be confused with your loan agreement.

Total amount payable

this is the total amount to be paid back at the end of the loan term, i.e. the amount that will be owed on the agreed repayment date

Unsecured loan

this is a type of loan where nothing is pledged as security which the creditor can take possession of if the loan is not repaid as agreed.

For a secured loan, a valuable possession such a house or car may be promised as security.