Glossary Of Consumer Finance Terms

A guide to the many terms used in the consumer finance market.

a

Acceptance rate – Percentage of successful clients when applying for a insurance or credit card. 66% or more of applicants must be offered the advertised rate known as the typical APR (see ‘Typical APR’ below).

Annual Percentage Rate (APR) The annual interest rate on the insurance or credit card balance. This allows potential clients to compare lenders. Under the Consumer Credit Act, lenders are legally required to disclose their annual interest rate.

arrears Missed payments on a insurance, credit card, mortgage, or most types of debt are called arrears. The borrower is legally obligated to settle any arrears as soon as possible.

order fee – In general for management costs of creating a mortgage.

B

base price The interest rate set by the Bank of England. This is the rate that banks charge for lending from the Bank of England. The base rate and how it might change in the future has a direct impact on the interest rate a bank may charge a consumer on a insurance or mortgage.

business insurances A insurance specific to a company and is generally based on past and likely future business performance.

c

car insurance A car insurance.

Consumer Credit Association (CCA) – Represents most of the business in the consumer credit industry. Government, local authorities, financial bodies, the media focusing on finance and consumer groups are all members. Members sign the constitution and must follow the Code of Practice and Business Conduct.

District Court Judgment (CCJ) A CCJ can be issued by a district court to an individual who has failed to settle outstanding debts. CCJ will negatively affect an individual’s credit history and can lead to a denial of credit. CCJ will remain on credit history for 6 years. It is possible to avoid this major negative spot in your credit history by fully settling the CCJ within one month of receiving it, in which case no details of the CCJ will be stored in your credit history.

credit crunch A situation in which lenders simultaneously reduce their lending usually leads to the common fear that borrowers will not be able to repay their debt.

credit file – Information stored by credit reference agencies, such as Experian, Equifax and CallCredit, regarding credit and borrowing arrangements for individuals. The credit profile is checked when lenders consider a credit application.

credit reference agencies Companies keeping records of individuals’ credit and borrowing arrangements, amounts owed, from and payments made, including any defaults, CCJs, arrears etc.

Looking for credit The general research that the lender does with credit reference agencies.

Dr

debt consolidation Converting multiple debts into one debt by means of a insurance or credit card.

shortening When a regular debt is missed. The default will be recorded on the individuals credit history and will negatively affect the chance of success of any future credit applications.

Data Protection Law An Act of Parliament in 1998 and the main legislation governing the use of personal data in the UK. Lenders are not allowed to share individuals’ personal data directly with other institutions or companies.

e

Early refund fee Fees charged by lenders if the borrower repays his debts before reaching the agreed-upon term of the debts.

the financial value The value of the property exceeds any insurance, mortgage, or other debt owed by it. The amount of money that an individual would have if he sold his property and paid off the debt on the property in full.

F

Financial Conduct Authority (FCA) The institution appointed by the government and responsible for regulating the financing market.

first shipment – Mortgage. The lender with the first charge on the property will take priority in paying off the mortgage or insurance from the funds available after the property is sold.

fixed exchange rate The interest rate will not change.

h

homeowner insurance Also known as a secured insurance. Homeowner insurance is only available to individuals who own their own home. The insurance will be secured against the value of the property, usually in the form of a second mortgage on the property.

I

Installment Insurances Multiple repayments for insurances spread over a period. Depending on the lender, they may have flexibility in repayment amounts and schedule.

y

subscription request A insurance or other credit application made by a married couple and not by one person such as a husband and wife.

the

the lender – The company providing the insurance or mortgage.

The purpose of the insurance Purpose of obtaining the insurance.

insurance period The period of time during which the insurance will be repaid.

insurance to value (LTV) It is generally associated with a mortgage and takes the form of a percentage. This is the insurance amount relative to the full value of the property. For example, an individual may be offered a 90% LTV mortgage on a property of £100,000. In this case the bid would be £90,000.

M

Monthly fees – Monthly insurance settlement payments including any interest.

Mortgage A insurance obtained specifically to finance the purchase of a property in most cases. The property is offered as collateral to the lender.

the

Online Insurances Although most insurances are available online. The Internet has allowed the development of technology that allows the insurance application to be processed faster than traditional methods. In some cases, the insurance application, agreement, and funds appearing in your account may take as little as 15 minutes or less.

s

payday insurance Short-term cash advance of up to 31 days to be paid on the next payment day. Payday insurances come with a high APR due to the shorter term of the insurance.

Payment Protection Insurance (PPI) Insurance to cover debt repayment in case the borrower is unable to make his payments for any number of reasons including redundancy, illness or accident.

personal insurances A general insurance for any purpose and in varying amounts that can be provided to an individual based on his credit history.

risk price Lenders now have a range of interest rates that are chosen based on the credit score of individuals. An individual with a poor credit score is considered to be high-risk and is likely to be offered a higher interest rate because the lender factors in the probability of default. On the contrary, an individual with high credit score and good credit history is considered to be low risk and a lower interest rate will be offered.

s

Qualification criteria The eligibility requirements required by the lender. The basic criteria required to qualify for a UK insurance are; Permanent residence in the UK, age 18 or over and a regular income. Many lenders may also include additional lending terms.

s

Organize – Financial “products” supervised by the Financial Conduct Authority (FCA). Lenders must follow a code of conduct and individuals are protected under the Financial Services Compensation Scheme (FSCS).

Payment schedule – The period of time during which the insurance will be repaid and the details of the insurance repayment amounts.

s

second shipment – A second insurance in addition to any other insurance secured on a real estate for individuals.

secure insurance Also known as a mortgage insurance. The secured insurance is only available to homeowners. The insurance amount is guaranteed against the property value. The lender has the right to take back your property if you fail to maintain the insurance payments.

joint ownership An agreement in which an individual owns only a percentage of the property. The remainder is owned by a third party often a housing association. An individual may obtain a mortgage on the part of the property they own and pay rent on the part of the property they do not own.

T

Total amount payable The total insurance amount plus interest and any applicable fees.

typical april The declared interest rate offered to at least 66% of successful insurance applicants.

WL

underwriting – Data verification and insurance approval process.

unorganized It is neither covered nor regulated by the Financial Conduct Authority (FCA).

insurance without collateral A insurance that does not require collateral and is offered in good faith. It is in the lender’s belief that you can repay the insurance based on your credit score, credit history and financial standing among other factors.

Fifth

variable rate An interest rate that changes during the insurance repayment period.