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Your Loans Questions Answered!

Contents

A :: B :: C :: D

A

Acceleration clause

A provision that gives the lender the right to collect the balance of a loan if a borrower misses a payment.

Accident, Sickness and Unemployment insurance

Income protection incorporating cover for loss of earnings arising from accident, sickness or unemployment. Usually paid out in the form of a monthly tax-free income to cover a portion of lost earnings and restricted to two years from the date of the first payment.

Adverse Credit

Somebody with a history of abusing credit or failing to keep up credit agreements will be referred to as having an adverse credit history. People who have county court judgements (CCJs), have become bankrupt, have mortgage arrears or have made late payments on any credit arrangement can all be described as having adverse credit.

Addendum

An addition or change to a contract.

Additional principal payment

Extra money included in the monthly payment to help reduce the principal and shorten the term of the loan.

Add-on interest

The interest a borrower pays on the principal for the duration of the loan.

Adjustment date

This is the date on which the interest rate changes for a variable rate mortgage.

Affiant

A person who makes a sworn statement.

Alienation clause

A provision that requires the borrower to pay the balance of the loan in a lump sum after the property is sold or transferred.

Amortization

A USA term which means paying a regular sum (usually monthly) plus interest over a fixed period of time, so that the debt (usually a mortgage) is completely eliminated by the end of the term.

Annual Percentage Rate

This is an indicator used to compare interest rates. It takes into account the costs involved in setting up the mortgage, any discount periods, how often interest is calculated and calculates what the average rate of interest will be over the life of the loan. All lenders that comply with the consumer credit act must ensure that the borrower is informed of the APR.

Application

A document detailing a potential borrower's income, debt and other obligations to determine credit worthiness.

Application fee

The fee a lender charges to process a loan application.

Applied or nominal interest rate

The rate used to calculate the interest due.

Appointed representative

Salesperson, company or organisation that advises on the investment products specific to one life assurance or investment company.

APR

This is an indicator used to compare interest rates. It takes into account the costs involved in setting up the mortgage, any discount periods, how often interest is calculated and calculates what the average rate of interest will be over the life of the loan. All lenders that comply with the consumer credit act must ensure that the borrower is informed of the APR.

Arrears

Arrears occur when the borrower misses one or a series of monthly payments. Arrears can lead to the repossession of the property.

Arrears fee

This is charged on a monthly basis to cover additional administrative costs where your loan account is one or more monthly payments in arrears.

Assurance Level Term

A policy that pays out on the event of death of the loan holder. It is level term because it will cover the same amount of loan debt throughout the repayment period. It is suited to interest only loans.

(Level Term) Assurance

Life assurance which pays out a lump sum if you die during the term. Suitable for interest only loans as the amount owed on the loan remains the same throughout the life of the loan.

(Life) Assurance

A Specific type of life insurance policy often linked with a mortgage or loan. A portion of premium goes toward insuring your life, and will pay off the loan in the event of death. The rest is invested and will pay a lump sum at the end of the term.

Asset

Anything that a person or company owns that has a cash value including property, savings, stocks, shares and personal possessions.

ASU

A form of income protection incorporating cover for loss of earnings arising from accident, sickness or unemployment. It is usually paid out in the form of a monthly tax-free income to cover a portion of lost earnings and is usually restricted to two years from the date of the first payment.

Autoscore

The process of using specialised online credit search databases to ‘score’ applicants' credit status.

ATM

Automated Teller Machine known in the UK as a CashPoint, usually found at banks and building societies for withdrawing and depositing cash.

 

B

BACS Limited

Bank Automated Clearing System.

Bad credit

Used to describe a poor credit rating. A poor credit rating results from making late debt re-payments (on loans, credit cards etc), exceeding borrowing limits, missing payments, County Court Judgements and bankruptcy.

Bailiff

An official representative of the courts, who may call round to repossess your possessions or house if you cannot keep up on your mortgage repayments and fail to reach an agreement with your lender to ammend your repayments.

Balance outstanding

The amount of a loan that remains to be repaid at any particular point in time.

Balloon loan

A mortgage in which monthly installments are not large enough to repay the loan by the end of the term. As a result, the final payment due is the lump sum of the remaining principal.

Balance transfer

Moving the outstanding balance (debt) on one or more credit cards to another card usually to obtain a lower overall interest rate.

Bankruptcy

A proceeding in which an insolvent debtor can obtain relief from payment of certain obligations. Bankruptcies remains on a credit record for seven years and can severely limit a person's ability to borrow.

Bank of England base rate

The rate of interest set by the Bank of England that is followed by almost all lenders and will influence variable rate loans UK .

Basis point

A basis point is one one-hundredth of one percentage point. For example, the difference between a loan at 8.25 percent and a mortgage at 8.37 percent is 12 basis points.

BBA - British Bankers Association

This is the trade organisation of the banks.

Before-tax income

Total income before taxes are deducted.

Benefit period

A timed period over which the interest rate of a loan is discounted, fixed or capped, for example.

Biweekly loan

A loan that requires payments every two weeks and helps repay the loan over a shorter term.

Breach of contract

The failure to perform provisions of a contract without a legal excuse.

Bridging loan

This is a short term loan provided by a bank or building society which covers you if you need to pay for your next home, while still waiting for the money to come through from the sale of your current home. If you do require one of these, you must ensure that the funds to repay the loan will be in place when the loan period expires.

Broker

A broker is an intermediary who offers policies / loans based on need from a 'panel' of providers. The broker is often the one who processes the loan.

BSQ

BUILDING SOCIETY QUESTIONNAIRE: A questionnaire completed by bank/building society or other lender providing details and conduct of an applicant‘s mortgage account.

BSA - Building Societies Association

This is the trade organisation of the building societies.

Building society

Building societies are mutually owned organisations, which exist not for profit but for the benefit of the members. The idea of this is that the society is able to offer cheaper products to its members, though this is not always the case.

Buildings and contents insurance

Buildings and contents insurance can often be purchased together protecting both the building structure and your belongings and possessions inside.

Buildings insurance

Buildings insurance is designed to give you financial protection for the basic structure of your home, such as the walls, roof and foundations. This usually includes any external parts of the property such as your shed, garage, conservatory or greenhouse.

 

C

Call option

A clause in a loan agreement that allows a lender to ask for the balance at any time.

Cancellation clause

A clause that details the conditions under which each party may terminate the agreement.

Capital Repayment Mortgage

Payments contribute to both the interest on your mortgage and the capital you borrowed. At first your payments contribute largely to the interest, then in the later stages a higher percentage will be devoted to repaying the capital.

Cap

A limit on the amount the interest rate or monthly payment can increase in an variable rate loan.

Capped Rate

Although the mortgage rate can move up and down there is a maximum rate above which it cannot go.

Capital

The original sum of money borrowed, not inclusive of any interest that might be charged upon it.

Cash back

A cash reward paid by a credit card issuer for use of their card.

CAT standard

These are a set of standards proposed by the government aimed at ensuring a certain level of standard amongst financial products such as mortgages and ISAs. Whilst they are a sign that a lender or provider is a reputable business and offers products that are of a certain quality, a CAT mark does nott ensure that a product is the most suitable one for you.

Caveat

A formal notice, that asks a court to suspend action until the party which filed the challenge can be heard.

Caveat Emptor

A legal principle derived from Latin than means "let the buyer beware."

Certificate of Satisfaction

Obtained from the county court after you have settled your CCJ.

Certificate of deposit (CD)

A document which shows that the bearer has a specified amount of money on deposit with a bank, stock-brokerage firm or other financial institution.

CCJ - County Court Judgement

Whenever someone fails to pay for something and is subsequently taken to court, the magistrate may issue a County Court Judgement against that individual to pay the outstanding debt. This may well affect your ability to raise finances in the future.

CFB Corporation of Finance Brokers

An association aiming to ensure that member firms are kept up to date with changing legislation and current trends within the profession, and to enhance the status and ethical standards of finance brokers.

CHAPS

Clearing House Automated Payment System. An electronic way of transferring money between accounts.

Charge

Security the lender relies on when granting a mortgage.

Charge certificate

A certificate from the Land Registry that shows the boundaries of a property and gives details of covenants affecting it.

CML

Council of Mortgage Lenders. Building societies, banks and other lenders are members of this trade organisation.

Code of practice

An agreement that certain professions can sign up to in which they agree to act or serve in a certain way and which therefore protects the consumer in areas (such as estate agency) which are not regulated by an institution.

Collateral

The property or other asset which the lender can sell to repay the loan if the borrower does not keep up the mortgage payments. In most cases, the home is collateral on a mortgage. If the borrower fails to repay the loan, the property will be repossessed.

Collection

The series of steps a lender takes to bring a delinquent mortgage up to date.

Collusion

The action of two or more people to break the law.

Compound interest

The interest paid on the principal balance in a mortgage and on the accrued and unpaid interest of the loan.

Compulsory products

Some lenders, at least for certain loans, insist that you take out payment protection insurance as a condition of the loan.

Consumer credit act

Act of legislation to define the rules relating to lending money and aimed at protecting the consumer when credit is agreed with a third party.

Contract

A legal document between two parties confirming any sort of agreement such as terms of sale, employment or service.

Contractual liability

The terms of a contract to which you must abide. There may be financial or even criminal penalties which you incur if if you do not meet your contractual liabilities.

Contractual lien

A voluntary obligation such as a mortgage or trust deed.

Contribution

An amount of money paid into an account. This can be a 'one off' payment or on a regular basis.

Conveyancer

A person, used as an alternative to a solicitor, to carry out the legal work involved in buying and/or selling a property. Note: It should be checked that they are licensed to carry out this function.

Co-signer

A person who assumes joint liability for a loan. The co-signer of a loan agreement is not necessarily, however, a co-owner.

Council of Mortgage Lenders

An institution that sets out a code of good practice which mortgage lenders volunteer to stick to - they are not regulated by the government.

Counter cheque

A cheque withdrawal made over the counter, issued by the cashier.

County court fee

This is charged when a lender provides information to solicitors relating to county court rules when your loan repayments are in arrears.

Cover

In the context of insurance, cover describes the specific risk a given policy protects you against. Life cover protects your family against the financial consequences of your death, buildings cover against damage to the property that you live in.

Credit

A measurement of a person's ability to pay bills on time. Several companies track individuals' credit histories by detailing late or missed payments on loans, credit cards and other debts.

Credit agencies

Companies used by UK loan providers who provide individual assessments of loan applicants in the form of a credit report.

Credit agreement

An agreement between the lender and borrower outlining various terms and conditions. This will need to be signed before the borrower receives their loan.

Credit averse

When a borrower has a poor credit history, has previously been declared bankrupt or has outstanding County Court Judgements, they are often described as credit averse. People with averse credit ratings often have to pay higher interest rates on a mortgage.

Credit checks

These are checks made when you try to borrow money or purchase goods on hire purchase, and are used to determine the risk of lending you money. They will examine your credit history and check for payment defaults and what you owe to other financial organisation. A credit agency is often used.

Credit history

If you have a history of bad debts, county court judgements or bankruptcy to your name, you may not be eligible for a mainstream mortgage. To help ensure you are a good credit risk, a lender may require references from your existing lender, bank or landlord. In addition to this, many lenders will make use of the services of one of the two large credit agencies, Experian and Equifax. These offer a credit inquiry or a full credit application, which show details of any existing credit arrangements or county court judgements against you.

Credit period

The time frame for which the lender agrees to provide you with credit.

Credit rating

The degree of credit worthiness assigned to a person based on credit history and financial status.

Credit reference agency

These private companies are used by loan providers to make individual assessments. They keep credit records of all individuals and businesses. The two main credit reference agencies in this country are Experian and Equifax.

Credit Card

A means of borrowing money or obtaining goods or services without paying cash.

Creditor

A business or organisation to which capital is owed, in other words, a lender.

Critical illness insurance

Covers an individual for life or for a set period against a number of serious illnesses, diseases and medical conditions. It pays out a single tax-free lump sum on the diagnosis of one of the illnesses specified in the policy details. The most common of these included in a policy of this sort are: Heart attack, Stroke, Cancer, Kidney or liver failure paralysis and multiple sclerosis. AIDS is not usually included.

D

Daily interest

Interest on the homeloan is calculated and applied on a daily rather than a monthly or yearly basis. Can lead to big savings.

Debit card

e.g. Switch card: money is taken from your bank account, usually on the same day you make a purchase.

Debt

Money owed to a lender.

Debtor

A person or company that owes money to you.

Debt-to-income ratio

A ratio used by lending institutions to determine whether a person is qualified for a mortgage. Debt-to-income is the total amount of debt, including credit cards and other loans, divided by total gross monthly income.

Default

When one mortgage payment or a series of payments are missed, the borrower is referred to as being in default.

Deferral period

Applies to payment protection policies and is the length of time after you are unable to work or make the claim before you can start to receive insurance payouts. Typically this ranges from 30 to 60 days, though for non-mortgage related products, the deferral period can be as long as 90 or even 120 days.

Delinquency

Being late with loan payments.

Delinquent loan

A loan that involves a borrower who is behind on payments. If the borrower cannot bring the payments up to date within a specified number of days, the lender may begin foreclosure proceedings.

Dependants

Person(s) who depends on another for financial support.

Discounted Rate

A discounted rate gives you a reduction of, for example, 2% off the standard variable rate (SVR) for a specific period. So, during this period should the SVR rise and fall, you will still qualify for the discount and therefore pay a lower rate.

Direct debits

A payment made from your account automatically to pay bills etc, usually amounts that vary, e.g. A gas bill.

Direct lenders

Provide financial services over the telephone and through the internet. Lower overheads resulting from a lack of high street premises and centrally streamlined processes mean that the overall costs are much lower and part of this saving is used to deliver cheaper products. Add to this the convenience of arranging a mortgage outside working hours from your own home, and it is easy to see why these new operations are finding favour.

Disability insurance

An insurance policy which covers an individual's ability to produce income.

Discounted loans

With a discounted rate loan, the Standard Variable Rate is temporarily reduced by a set amount for a specified period. This usually ranges from one to five years. Once the discounted period is over, you then revert to paying the prevailing Standard Variable Rate. With this type of mortgage, it is the discount that is fixed and not the actual rate.

Double Insurance

Policies vary from lender to lender. Generally double insurance offers protection against sickness, accident and redundancy for the first and second wage earners. Cover is also available for self employed borrowers and under certain circumstances for non working partners. Details of the specific insurance plan will accompany the lenders offer.

Essential Loans strongly recommend that you consider some form of insurance protection, especially in the case of secured loans and mortgages.

 

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