Applying for a loan can seem a little confusing at times - there's so much jargon to get through! To help you out, we've put together some simple definitions of the most commonly used terms in the credit industry. Hopefully they will make things a little clearer, so you can get on with your application with no complications. You can also take a look at our FAQs or the how it works section if there are still a few things you're unsure about.
Agent
Loan agents work on behalf of home credit providers and are responsible for completing loans with their customers. They are also responsible for collecting the repayments each week. They are self-employed and follow structured training and regulation programmes
APR
APR stands for Annual Percentage Rate, which means the rate of interest payable on a loan over a year including all rates and charges.
Arrears
If you are in arrears, it means that you have not been keeping up with your loan repayments and your account is now behind. Some lenders may charge you for being in arrears and it can have a negative effect on your credit score. If your arrears are getting on top of you then there are options to help you. Try contacting StepChange or Citizens Advice to get some free, impartial advice.
Bankruptcy
Bankruptcy is the term for when a person or a business is declared by a court to be unable to pay off their debts. This means they are financially unstable and their homes, possessions and other assets are often used by creditors towards the repayment of the debt. Bankruptcy takes a long while to recover from and has a serious impact on your credit score.
Borrower
A borrower is an individual who obtains credit from a lender, with the agreement to pay them back. When taking out credit the borrower should know what interest they will pay, how much their repayments are and when their debt will be repaid.
Budget
A budget is a record of your income (e.g. wages, grants or benefits) and outgoings (e.g. rent, bills, transport) to see where you stand financially. A budget is the best way to understand whether you have more money coming in than going out over a set period of time
Bounced cheques
When a cheque 'bounces' it means that there is not enough money for the payment to be taken out in the account the chequebook is assigned to. If you make a payment and the cheque bounces you will usually be charged a fee - so it's best to avoid this. Another term for a bounced cheque is a 'returned cheque'.
Charges
In financial terms, 'charges' are anything which you can be charged money for on any credit you have taken out. For example - if your repayment is late or if your cheque bounces then you may be charged. It is worth being aware of any charges before you take out a loan.
Collateral
Something put forward as security for a loan repayment. Often, houses are used as collateral, because they are of high value. In the event that you cannot repay your loan, your collateral will be used as payment. This is often the case with secured loans.
Credit
Credit is money or goods borrowed from a business or financial institution, on the basis that it will be paid back. A credit agreement is drawn up to make sure that terms and conditions are in place for repayment. Credit can come in many forms like credit cards, overdrafts and loans.
Credit report
Your credit report is a document which details your credit history. It is used to determine your creditworthiness by awarding you with a credit score. Your credit report is held by credit reference agencies and is updated frequently.
Credit score
You will be given a credit score based on your credit history and personal information, which will be made up of points. Each credit reference agency will operate differently, so there is no perfect credit score, but generally the higher the number of points you have the better your credit score is.
Credit history
Your credit history details your past financial behaviour, and is used to put together your credit report. Any previous credit like loans or overdrafts will be listed on here, as well as how you have managed your repayments.
Credit reference agency
A credit reference agency collects information from various sources on the credit history and past financial behaviour of everyone in the UK. They use this to form your credit report. This is then made available to banks and other lenders. The three main credit reference agencies in the UK are Experian, Equifax and TransUnion.
CCJ
CCJ stands for a ‘County Court Judgement’ and is an order for a debt to be repaid which is declared by a court. A creditor can apply for a CCJ if they believe that they are owed money, and the court will then investigate whether this is the case. Having a CCJ can negatively affect your credit score.
Debt
Debt refers to money borrowed by one party from another. Getting into some debt is something that is often unavoidable, and if managed correctly it can improve your credit score. Badly managed debt, however, can negatively affect this. If you are struggling with debt, take a look at Stepchange or Citizens Advice to see how they could help.
Doorstep loan
A doorstep loan is a type of home credit, usually in the form of a cash loan. These loans are finalised in person and the repayments are collected from your home every week at a convenient time for you. Doorstep loans are usually for amounts of about £50 to £1000.
DRO (Debt relief Order)
A debt relief order is an alternative to bankruptcy, suited for people who have low assets and low income. Creditors listed in a DRO cannot take action against that individual for a year. It is a less expensive option than bankruptcy and the courts do not get involved, however there are a number of criteria people must meet to qualify.
Early repayment
An early repayment is when you pay back your loan before the repayment date. Some banks or lenders may charge a fee for paying your loan off early - so make sure you check this before you take out your loan. Some lenders may give you an early settlement rebate if you pay your loan off early.
Early settlement rebate
If you repay your loan early you may be entitled to an early settlement rebate. This is a sum of money that you will get back because you did not have the loan long enough to incur the full amount of interest or other fees. The amount you get will be based on several factors like how early you pay back your loan, and will vary from company to company.
FCA
FCA stands for the Financial Conduct Authority. The FCA regulates lenders and other firms in the financial services industry to ensure that they are open and honest about their loans and products. The FCA has three statutory objectives:
- To secure an appropriate degree of protection for consumers
- To protect and enhance the integrity of the UK financial system
- To promote effective competition in the interest of consumers
Visit the FCA website for more information about what they do.
Fixed rate interest
Fixed Rate Interest is an amount of interest that does not change over the course of your loan. With a fixed interest rate you will see how much your loan will cost you upfront, so you can decide whether the loan is right for you.
Home credit
Home credit is a term used to describe Home-collected or doorstep loans. Home credit provides a personal, face-to-face service where the loan is finalised with a customer in person, and the repayments are collected from their homes each week.
Interest
This is a fee paid by a borrower to a lender for the use of credit. It is necessary to make sure repayments are made and that the lender can continue to lend in the future. Each lender will determine their interest rates depending on the credit in question.
IVA (Individual Voluntary Agreement)
An IVA is a formal agreement by an individual to pay their creditors a certain amount each month which they can afford. Usually an IVA is taken out if someone’s debts have gotten on top of them, and they are unable to pay the amount each creditor wants each month. When the final repayment of an IVA is made, any remaining debt is written off.
Loan term
The loan term is the length of time that you agree to pay your loan over. So if you took out a £500 loan over 52 weeks, then 52 weeks would be your loan term. Generally you will agree a loan term when you take out the loan, and interest will accrue over the length of the loan term.
Lender
In financial terms, a lender is a business that lends money. When a lender 'lends' money there is an agreement made about how much interest will be charged, how long the credit will be for and how the repayments will be made.
Loan agreement
A loan agreement is the contract between a borrower and a lender, which is agreed by both parties before taking out a loan. The agreement will detail the loan amount, agreed repayments and the interest rate.
Minimum repayment
When you take out credit, the minimum payment is the smallest amount that you can pay each time a repayment is due. This is applicable mostly to credit cards where there may not be a set repayment amount. It is recommended that if possible you pay more than the minimum repayment or you will accrue more interest and fees.
Outstanding balance
The outstanding balance of your loan is what you have left to pay. This will decrease with every repayment you make. With a Loan from Morses Club you will be able to keep a track of your outstanding balance and see your repayments by using the payment book that we provide.
Payday loan
A payday loan is a small, unsecured loan which is taken out over a short term - usually up to about 30 days. These loans can be finalised quickly and are often used for emergencies. With payday loans there is usually a lump sum repayment and it is important to make this on time and for the right amount.
Payment book
When you take out a loan with Morses Club, you will be given a payment book. This will detail your loan amount, and then keep a record of the repayments you make each week. It will be filled in by your agent when they collect your repayments. Using your payment book will allow you to keep track of your outstanding balance.
Payment history
Your payment history is a list of all the repayments you have made on any credit since the accounts were opened. Companies will record your payment history with themselves, and your wider payment history can be seen in your credit report. It is important to keep on top of your repayments for any credit you have taken out, so that your payment history stays intact.
Personal loan
A personal loan is a loan which is taken out by an individual and is usually intended for personal use. For example, a mortgage is not usually classed as a personal loan because it is intended to be used for property. Usually personal loans are unsecured loans, and are based on the creditworthiness of the individual.
Repayment amount
Your repayment amount is the amount you agree to pay back in each repayment. For example, if you took out a £500 loan with Morses Club, your repayment amount would be £17.50, and you would pay this over 52 weeks (representative 272.2% APR). Your repayment amount will be detailed in your loan agreement.
Repayment date
Your repayment date is the day on which you agree to make your repayments. This could be a fixed day each week or it could be an arranged date to make a lump sum repayment. Some lenders will charge you for not making your repayments on time, so to avoid this make sure you are aware of when your repayment is due.
Secured loan
A secured loan involves your loan being secured against some collateral, like your house for example. If for any reason you are unable to continue your loan repayments, the lender will use the collateral as repayment. Generally secured loans are only available to homeowners and can be for large amounts of money.
Sequestration
Sequestration is a different term for bankruptcy which is used in Scotland. Similar to bankruptcy, it means that an individual or business has been declared unable to pay off their debts by a court, and homes, possessions and assets may be seized in repayments of these. Sequestration can have a serious impact on your credit score.
Underpayment
An underpayment is when you repay less than your repayment amount. Often there is a charge associated with not paying the correct amount, and if you do this frequently your credit score may be affected. Talk to your bank or lender if you feel you will not be able to meet your repayment amount, or if you are really struggling try contacting a debt charity like StepChange.
Unsecured loan
An unsecured loan is a loan which does not have to be secured against any collateral. It is based solely on the creditworthiness of the individual, on the result of credit and affordability checks etc. Generally, unsecured loans are for smaller amounts than secured loans, as the lender is taking more of a risk.
