The following Jargon Buster is the clearing in the finance forest, we hope you find it useful. Should you have any further questions or comments do not hesitate to get in touch...
APR:
The APR is the amount of interest you will be charged each year, as a percentage of each pound you owe on your debt.
APR - The figures:
When searching for a credit card or loans, always ensure you review the APR as this is the interest you will pay. For example if you spend £100 on your card, and the rate of interest is 15.9% then in the first month you will be charged £1.33 interest, so your new balance will be £101.33, however the second month you will be charged £1.54 interest because the interest is compounded (i.e: you will be charged interest on your interest).
Charge Cards:
TThese are different from credit and store cards. With these e.g. American Express/Diners Club, you are expected to pay the whole balance each month.
Credit Cards and Store cards:
You will normally have a credit limit set by the bank or finance provider, allowing you to spend up to that amount. You will then be sent a monthly statement, with a minimum payment that you are expected to make, or if you can afford it you can choose to pay off the whole lot. If you choose to pay only the minimum payment, or just part of the balance, you'll be charged a percentage of interest on the outstanding balance.
Credit Sale Agreement:
Sales agreements are common place in many of the highstreet electrical retailers. If you want to buy something the shop will arrange a loan with a finance company and you get the goods straight away. You will normally have to pay off the loan by monthly instalments back to the finance company.
Credit Scoring and Eligibility:
When applying for a loan, the lender will perform a full credit check on you with credit reference agencies as well as asking financial sensitive questions. If you are refused a personal loan it may be because you poor credit scoring, relating to all manner of issues including County Court Judgments registered against youself in the past, previously declined applications for credit, defaults on payments, arrears on a mortgage, any repossession of property or cancellation of a credit card by the credit card company.
Hire purchase, or HP:
Such agreements are commonplace for large purchases such as cars for example. The HP company will buy the goods on your behalf, to which they will retain ownership until the end of the agreement. HP agreements are popular due to the inability to save large amounts of money for cars for example, but it is worth bearing in mind that if you fall behind in your payments the HP company may be able to repossess the goods.
Interest free credit or buy now, pay later deals:
These allow you to pay for the goods in instalments, but at the cash price, or will let you defer payment for a period of time, such as 6 or 9 months. You will have an agreed payment due by dates, and if you fail to pay the outstanding balance by this date then you may be charged interest on the balance when the goods were supplied.
IVA or Individual Voluntary Agreement:
An IVA is a formal legally binding agreement between a person in debt and his or her creditors to pay off all or a percentage of the money owed, usually over a 3 - 5 year period (36-60 months). For further details, we have provided an IVA analysis here.
Late Payments:
Serial late payments on credit cards or loans can not only lead to legal action in extreme case but can also affect your credit rating. Missing one or two payments often won't be noted on your credit reference files, but numerous late payments will adversely affected your rating, which might take months to rectify. Why not consider setting up a Direct Debit, which your card bank will be more than happier to set up in order to make the minimum payments on your card every month to ensure you don't forget.
Loans Sharks:
When borrowing money, please be careful – unfortunately there are disreputable businesses out there who will lend you money, no questions asked, at an extortionate rate of interest. At ClearStudentDebt.co.uk, we only feature professional and reputable companies, considering fair practise and public opinion on the best loan and Credit Card providers.
Minimum Payment:
The minimum payment on credit card debt is calculated as a percentage of your current balance. The minimum payment drops as your balance is paid. However if you pay only the minimum repayment every month then you are only repaying the interest charges and not that of THE balance.
Payment Protection:
Many loan companies offer payment protection schemes at a future cost to the amount you are borrowing. These schemes can offer you peace of mind that in the event that you are unable to meet your required loan payments due to an accident, illness or redundancy, you loan payment will be covered.
Personal loans from a bank or building society:
One is normally expected to have a bank account before they can take out a personal loan. In these instances the institution will loan you the money and an agreed interest rate, and you will normally pay this of via monthly direct debit. Personal loans often carry a cheaper rate of interest.
Reward Cards:
Pay off the full balance every month? Then why not earn rewards from your credit card provider. There are numerous cards on the market that offer rewards including the American Express Nectar Card that offer Nectar points, which can be redeemed on gifts including high-street vouchers.
Travel Protection:
Under the Consumer Credit act purchasing travel products, including Flights & Holiday with your credit card, providing that the total cost is over £100 provides protection should the airline or tour operator go bust.
Unsecured loans vs. Secured loans:
A secured loan has the value of your property set against the amount borrowed. It is important to remember that your home is at risk if you fail to make payments on your mortgage or other loan secured on it. Unsecured loans are not secured on your property, but missing payments may have severe consequences and may make obtaining credit more difficult in the future.
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