In the world of finance we love to create new words, terms, abbreviations and acronyms and sometimes we’re not so great at explaining what these mean. To help you we’ve created a list of the most commonly used terms when you take out a loan and an easy explanation of what each term means:
APR stands for Annual Percentage Rate. This is the rate at which someone who borrows money is charged. It is calculated over a twelve month period and is shown as a percentage. The APR percentage represents the actual yearly cost of the funds over the term of a loan.
Bad Credit describes an individual’s credit score. If someone has bad credit their credit score will be low. This may be because they have had difficulty paying money back in the past. Some institutions, such as high street banks and online lenders, will not lend to people with Bad Credit. There are specialist lenders like TFS loans who are happy to lend to individuals with Bad Credit, providing that they have someone who can act as their Guarantor.
Bankruptcy describes a situation in which a business or person becomes bankrupt. If a person or business becomes bankrupt they are unable to pay what they owe (any outstanding debts). They go through a legal process which, once completed, successfully relieves the debtor of the debt obligations incurred prior to filing for bankruptcy.
A CCJ stands for County Court Judgement. This is an order from the Country Court instructing an individual to repay a debt. A lender can apply to the County Court if a Borrower hasn’t repaid a debt, they effectively take legal action against the Borrower to recover the money. Some institutions, such as high street banks and online lenders, will not lend to people with CCJs as they are considered too risky. Specialist lenders liks TFS loans we are happy to lend to individuals with CCJs, providing that they have someone who can act as their Guarantor.
A credit history is a record of a Borrower’s responsible repayment of debts over a period of time. When applying for a loan, lenders will often look at an individual’s credit record which details out their credit history from a variety of sources, including banks, credit card companies, collection agencies and governments. This helps the lender to judge the risk of lending money to an individual.
A credit score is a three digit number that is based on information in a credit report (which is a report of someone’s debt and payment of debt). The number ranges from 300 to 850 and gives an indication of how likely a person is to repay their debts. A higher number indicates they are more credit worthy and likely to pay back their debts. Lenders will use an individual’s credit score to make a decision on whether to lend to an individual and how much they are prepared to lend.
Debt Consolidation is a method used for managing debt. It involves taking out a single new loan to pay back several of your other debts and liabilities, so an individual has one larger loan to pay back, usually with more favourable pay-off terms e.g. a lower interest rate, lower monthly payment or both.
To default means a person fails to fulfil an obligation. In the case of a loan it means a failure to repay a loan that you are legally obliged to repay.
Fixed Flat Rate
A fixed flat rate is a single fixed fee for a service or loan, which does not vary with usage or time of use. It is sometimes referred to as a flat rate or linear rate.
A Direct Debit is an arrangement for making payments, usually to an organisation, in which your bank moves money from your account into the organisation’s account at a regular time. When you take out a Loan most companies will ask you to set up a Direct Debit with your Bank. You are effectively giving permission for the lender to collect the loan amount each month from your Bank account on an agreed date.
Fraud Prevention Agencies
Fraud Prevention Agencies (FPAs) collect, maintain and share information on known and suspected fraudulent activity. Some Credit Reference Agencies (CRAs) also act as FPAs.
A Guarantor is a person that promises to pay back a loan if the person that borrowed the money cannot pay it back. Guarantors are required for Guarantor Loans. If you were to apply for a TFS Guarantor Loan your Guarantor must be a UK Home owner with a good credit history, who can afford to pay back the loan if you cannot.
A guarantor loan is an unsecured loan that requires the borrower to have a Guarantor who co-signs their credit agreement. By doing this the Guarantor agrees to repay the Borrower’s debt should the Borrower default on the agreement repayments. Guarantor loans enable people who have either no credit history or poor credit history and have been refused credit from main stream lenders like High Street banks and credit card companies, to obtain a loan. Because they have the backing of a Guarantor they are often able to access more money than would otherwise be available to them.
A homeowner is someone who owns their own home – this can be a house, flat, apartment, bungalow etc. A homeowner does not need to own their home outright – they will often have a mortgage on it.
Rate of Interest
Rate of Interest is the interest (usually expressed as a percentage) that a financial company or bank will charge you to borrow money, or the interest it pays you when you have money in an account. In the case of a loan the Rate of Interest is the proportion of a loan that is charged as interest to the borrower. This is usually shown as an APR %.
A secured loan, is often referred to as a homeowner loan because the debt is linked to the borrower’s property. The amount you can borrow, repayment terms and interest rate offered on a secured loan is linked to your personal circumstances and the amount of ‘free equity’ you have in your property (this is the difference between the amount you owe on your mortgage and the value of your property). You can generally borrow more with a secured loan, but should you default on your payments you risk losing your property.
An unsecured loan is not protected by any collateral, so should you default on payments the lender can’t automatically take your property, but this can happen after court proceedings. Unsecured loans can be offered to people who don’t own property and that makes them available to a much wider range of people. They are flexible to repay – you can choose the amount and over what time period you repay your loan. All TFS Guarantor Loans are unsecured loans.
Author: Robert Smoker joined TFS Loans as CEO in September 2014 having been with Brown Shipley & Co Ltd a prestigious UK Private Bank for over 36 years. Robert joined Brown Shipley in 1977 as a Management Trainee in their lending and trade finance division. He was appointed Head of Lending in 1990 and restructured their lending activity prior to a number of business acquisitions in 2001 as the Bank focused on providing wealth management and private banking services.
He was appointed as an executive director in 2002 with board responsibility for Compliance and Risk Management and latterly Audit in 2004. He was responsible for ensuring the Bank maintained an exemplary regulatory reputation following the transition to FSA in November 2001 and the introduction of the PRA in 2010 following the Banking crisis.
Robert remained at Board level until 2014 and following the acquisition of Brown Shipley by Qatari investors in 2012 was given responsibility for the investment management, banking, financial planning and pensions teams in the London office to help implement the group’s growth strategy.