Financial Jargon Busters
03 Sep 2021
What is an APR? What is the difference between a secured loan and an unsecured loan? What does it mean if I’m in arrears? These are all questions we ask ourselves at least once in our lives! Asking a financial expert to explain these terms can often lead to even more confusion, and that’s where we come in!
We know how important it is to understand money, and the terms that go along with it, and that’s why we’ve listed some of the most used terms in the financial industry and explained them in plain English. So whether your scratching your head about an APR rate, or wondering what it means if you find yourself in arrears, we’ve busted as many of the most common jargon busters as we can.
The term “annual percentage rate (APR)” refers to the annual rate of interest charged to borrowers and paid to investors. APR is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan or income earned on an investment. Lenders are required to show APR when advertising a loan. Interest rate across a year, which is applied to some form of credit. It’s not only the interest on a loan, but also includes any fees and others costs which may be incurred over the course of the borrowing term.
This is when money borrowed is not paid by its due date and is therefore owed. If you find yourself in arrears, you could incur extra fees and charges, on top of what you already owe.
This is the amount of money you have in your bank account at a given time, or alternatively, the amount you owe on your credit card.
In its first and most common-used definition, credit refers to an agreement to purchase a product or service with the express promise to pay for it later.
An authorised payment taken directly from a current account. When a direct debit mandate is set up, an account holder authorises someone else to collect the money from their account. The amount of money can vary, and while account holders can cancel a direct debit this may result in penalties or charges from the company. Be sure to check terms and conditions when setting up a direct debit to know what you’re signing up for.
A credit rating gives you a score based on your previous credit history, and that score determines how ‘good’ a borrower you would potentially be. Your credit rating will be used by most financial institutions or anyone offering a credit agreement such as a mobile phone company to help make their decision.
A deposit is a financial term that means money held at a bank. A deposit is a transaction involving a transfer of money to another party for safekeeping. However, a deposit can refer to a portion of money used as security or collateral for the delivery of goods.
This is where the interest rate and payment remain the same for the length of time you have a financial product, for example, a mortgage or loan. This will be agreed prior to signing up to the product. Typically, this rate is only guaranteed for a certain period of time after which you would renegotiate, or moved to a variable rate.
This is a person who guarantees to pay off another individual’s debt, should the borrower find that they cannot pay it.
International Bank Account Number.
Bank Identifier Code
This is a unique number that identifies your bank (also known as SWIFT code or sort code). You’ll need this code (and your IBAN) to send and receive payments
Interest is the cost of borrowing money, where the borrower pays a fee to the lender for the loan. The interest, typically expressed as a percentage, can be either simple or compounded. Simple interest is based on the principal amount of a loan or deposit.
In simple terms, an interest rate is rate charged by a lender of money or credit to a borrower. In short, from the borrower's point of view it is the 'cost' of borrowing, and from the lender's point of view it is the reward for lending. Or, to put it into an even simpler way, the rate of interest is the price of money.
A Deed you sign to create security over a house or land and sometimes over other types of property. For example, security in the form of a mortgage is usually given to a bank or building society to enable it lend to a borrower to finance the purchase of a property.
An overdraft is an extension of credit from a lending institution that is granted when an account reaches zero. The overdraft allows the account holder to continue withdrawing money even when the account has no funds in it or has insufficient funds to cover the amount of the withdrawal.
Savings refers to the money that a person has left over after they subtract out their consumer spending from their disposable income over a given time period. Savings, therefore, represents a net surplus of funds for an individual or household after all expenses and obligations have been paid.
A standing order is an instruction a customer gives to their bank to pay a fixed amount at regular intervals whether this is weekly, monthly, quarterly or yearly. This can be changed and cancelled by you at any time. With Direct Debit, you authorise a company or organisation to collect money directly from your bank account whenever a payment is due. The amount they collect can change each month e.g. mobile phone bill. You can also cancel a direct debit, but you cannot change the amount that is withdrawn.
An unsecured loan is a loan that doesn't require any type of collateral. Instead of relying on a borrower's assets as security, lenders approve unsecured loans based on a borrower's ability to repay. Examples of unsecured loans include personal loans, student loans, and credit cards.
A secured loan is a loan backed by collateral—financial assets you own, like a home, car or savings —that can be used as payment to the lender if you don't pay back the loan. The idea behind a secured loan is a basic one. Lenders accept collateral against a secured loan to incentivize borrowers to repay the loan on time otherwise they have a right to claim the value of the loan, with whatever you have borrowed against.
Repayment is the act of paying back money previously borrowed from a lender. Most of the repayments are made up of the money you borrow, with a portion of the repayment going on interest, which is the amount it costs you to borrow. The total amount is repaid over an agreed term or period of time (weekly, monthly etc.)
The Central Credit Register (ROI) is a new secure system for collecting personal and credit information on loans of €500 or more.
In the UK/NI Credit Referencing Agencies such as Experian or Equifax are used, however it is not compulsory in NI for a lender to check. But you’ll find, more and more lenders check these agencies, particularly as the loan amount rises. It is possible to obtain your credit score/credit check free of charge from these agencies.
A person whose business it is lending money to others. Moneylenders typically charge high rates of interest and as such you should only consider borrowing money from a regulated organisation. Should you borrow from an illegal moneylender, you may find yourself paying excessive rates of interest and should you fall into arrears, you may encounter unreasonable additional charges.
The members of any credit union have something in common. Typically it is where you live or work. It can also be the type of job you have. This is known as a “Common Bond” and will determine the credit union you can join.
The content within this series is aimed to provide general guidance and information only. It does not represent financial advice.