Financial terms explained
Plain-English definitions for the terms you'll encounter when borrowing, applying for credit, or managing debt.
A
- Affordability check
- An affordability check is a lender's assessment of whether you appear able to manage repayments without getting into fin…
- APR (Annual Percentage Rate)
- The Annual Percentage Rate shows the total cost of credit per year, including fees and interest, expressed as a percenta…
- Arrears
- Arrears refers to a debt or payment obligation that is overdue. If you miss a payment on a loan, credit card or bill, th…
B
- Balance transfer
- A balance transfer involves moving an existing debt, usually a credit card balance, to a new credit card — often to take…
- Bankruptcy
- Bankruptcy is a legal process for people who cannot repay their debts. Most debts are written off after 12 months, but i…
- Breathing Space
- Breathing Space (formally the Debt Respite Scheme) is a UK government scheme that gives people in problem debt a period …
- Broker
- A broker searches across multiple lenders on your behalf and earns a fee or commission if you take out a product through…
- Buy now, pay later (BNPL)
- Buy now, pay later products allow you to purchase goods and spread the cost, sometimes without interest, over a short pe…
C
- CCJ (County Court Judgement)
- A court order issued in England and Wales when you fail to repay money you owe. A CCJ stays on your credit file for six …
- Credit file (credit report)
- The record held by each credit reference agency of your borrowing and payment history. It includes details of all credit…
- Credit reference agency (CRA)
- A credit reference agency is an organisation that collects and maintains data about individuals' credit histories. Lende…
- Credit score
- A number produced by a credit reference agency that summarises your credit history. Lenders use it — alongside their own…
- Credit union
- A not-for-profit financial co-operative owned by its members. Credit unions offer savings accounts and loans, typically …
- Credit utilisation
- Credit utilisation is the proportion of your available credit limit that you are currently using. High utilisation — typ…
D
- Debt consolidation
- Combining multiple debts into a single loan, usually to simplify repayments or reduce the overall interest rate. Not alw…
- Debt management plan (DMP)
- A debt management plan is an informal agreement between you and your creditors, usually arranged through a free debt cha…
- Debt relief order (DRO)
- A debt relief order is a form of insolvency for people with low income, few assets and relatively small debts. It freeze…
- Default
- A default is recorded when you fail to make repayments for a sustained period — typically 3–6 months — and the lender fo…
- Default notice
- A default notice is a formal letter from a lender warning that you are in breach of your credit agreement, usually due t…
E
- Early repayment charge
- An early repayment charge (ERC) is a fee some lenders charge if you repay a loan before the agreed term ends. It typical…
- Eligibility check
- An eligibility check uses a soft search to indicate how likely you are to be accepted for a credit product, without affe…
F
- Financial Conduct Authority (FCA)
- The Financial Conduct Authority is the UK regulator for financial services firms and markets. Lenders, brokers and other…
- Fixed rate
- A fixed interest rate stays the same throughout an agreed period, regardless of changes in base rates or the wider marke…
G
- Guarantor
- A person who agrees to repay a loan if the primary borrower fails to do so. Guarantor loans allow people with poor credi…
H
- Hard search (hard credit check)
- A full credit check that leaves a record on your credit file visible to other lenders. Multiple hard searches in a short…
- High-cost short-term credit (HCSTC)
- High-cost short-term credit is the FCA's regulatory category for short-term loans with very high interest rates — typica…
I
- Individual Voluntary Arrangement (IVA)
- An Individual Voluntary Arrangement is a formal agreement between you and your creditors to repay a portion of what you …
- Interest
- Interest is the cost of borrowing money, expressed either as a regular payment or as a percentage rate. When you borrow,…
L
- Lender
- A lender is an organisation or individual that provides money to borrowers under an agreement to be repaid, usually with…
M
- Minimum payment
- The minimum payment is the smallest amount you are required to pay on a credit card or revolving credit facility each mo…
N
- No credit check loan
- A no credit check loan is a loan advertised as not requiring a credit check. In practice, all responsible UK lenders mus…
O
- Overdraft
- An overdraft allows you to spend more than you have in your bank account, up to an agreed limit. Arranged overdrafts are…
P
- Payday loan
- A short-term, high-cost loan designed to be repaid on your next payday. APRs on payday loans are typically very high — s…
- Priority debt
- Priority debts are debts where the consequences of not paying can be most serious — such as losing your home, having you…
R
- Representative APR
- The rate that at least 51% of successful applicants receive. It's a legal minimum in advertising but doesn't mean you'll…
S
- Secured loan
- A loan backed by collateral — usually your home. If you fail to repay, the lender can repossess the asset. Secured loans…
- Soft search (soft credit check)
- A credit check that doesn't leave a mark on your credit file visible to other lenders. Used for eligibility checks, pre-…
T
- Total amount repayable
- The total amount repayable is the full amount you would pay back over the life of a credit agreement, including the orig…
U
- Unsecured loan
- A loan not tied to any asset. If you default, the lender cannot automatically seize property — instead they can take leg…
V
- Variable rate
- A variable interest rate can change during the life of a loan or mortgage, usually in response to changes in the Bank of…