Money words, explained.
Plain-English definitions for the terms you'll encounter when borrowing, applying for credit, or managing debt. No jargon, no upselling.
A
4 terms
AER (Annual Equivalent Rate)
The Annual Equivalent Rate is the standardised rate used for UK savings accounts. It shows what you would earn over a year if interest were …
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Affordability check
An affordability check is a lender's assessment of whether you appear able to manage repayments without getting into financial difficulty. I…
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APR (Annual Percentage Rate)
The Annual Percentage Rate shows the total cost of credit per year, including fees and interest, expressed as a percentage. Used to compare …
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Arrears
Arrears refers to a debt or payment obligation that is overdue. If you miss a payment on a loan, credit card or bill, the amount you owe bec…
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B
6 terms
Balance transfer
A balance transfer involves moving an existing debt, usually a credit card balance, to a new credit card — often to take advantage of a lowe…
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Bankruptcy
Bankruptcy is a legal process for people who cannot repay their debts. Most debts are written off after 12 months, but it has serious conseq…
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BNPL Late Fee
A BNPL late fee is a charge applied by a Buy Now Pay Later provider when an instalment is missed. The size and structure of the fee vary by …
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Breathing Space
Breathing Space (formally the Debt Respite Scheme) is a UK government scheme that gives people in problem debt a period of protection from c…
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Broker
A broker searches across multiple lenders on your behalf and earns a fee or commission if you take out a product through them. Mortgage brok…
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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 period. They are incre…
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C
8 terms
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 years and significan…
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Chargeback
Chargeback is a card-scheme rule (Visa, Mastercard, Amex) that lets a cardholder dispute a transaction and ask their card provider to revers…
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Credit Builder Card
A credit builder card is a credit card designed for people with limited or damaged credit history. It typically offers a low credit limit an…
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Credit file (credit report)
The record held by each credit reference agency of your borrowing and payment history. It includes details of all credit accounts, missed pa…
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Credit reference agency (CRA)
A credit reference agency is an organisation that collects and maintains data about individuals' credit histories. Lenders use CRA data to m…
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Credit score
A number produced by a credit reference agency that summarises your credit history. Lenders use it — alongside their own scoring systems — t…
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Credit union
A not-for-profit financial co-operative owned by its members. Credit unions offer savings accounts and loans, typically at lower rates than …
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Credit utilisation
Credit utilisation is the proportion of your available credit limit that you are currently using. High utilisation — typically above 30–50% …
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D
7 terms
Debt Arrangement Scheme (Scotland)
The Debt Arrangement Scheme (DAS) is a statutory Scottish debt-help solution that lets you repay debts through a Debt Payment Programme (DPP…
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Debt consolidation
Combining multiple debts into a single loan, usually to simplify repayments or reduce the overall interest rate. Not always cheaper — always…
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Debt management plan (DMP)
A debt management plan is an informal agreement between you and your creditors, usually arranged through a free debt charity, to repay your …
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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 freezes debts for 12 month…
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Default
A default is recorded when you fail to make repayments for a sustained period — typically 3–6 months — and the lender formally closes your a…
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Default notice
A default notice is a formal letter from a lender warning that you are in breach of your credit agreement, usually due to missed payments. I…
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Doorstep Loan
A doorstep loan (also called home credit) is a short-term loan collected in person at the borrower's home, usually in weekly cash instalment…
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E
2 terms
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 typically equals one to two…
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Eligibility check
An eligibility check uses a soft search to indicate how likely you are to be accepted for a credit product, without affecting your credit sc…
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F
3 terms
Financial Association
A financial association is a link recorded on your credit file between you and someone you share financial responsibility with, usually thro…
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Financial Conduct Authority (FCA)
The Financial Conduct Authority is the UK regulator for financial services firms and markets. Lenders, brokers and other credit firms must b…
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Fixed rate
A fixed interest rate stays the same throughout an agreed period, regardless of changes in base rates or the wider market. Fixed-rate person…
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H
3 terms
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 period can lower yo…
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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 — typically payday loans and…
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Hire Purchase (HP)
Hire Purchase is a finance agreement where you pay a deposit, then fixed monthly instalments, and own the item outright at the end. It is mo…
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I
3 terms
Individual Voluntary Arrangement (IVA)
An Individual Voluntary Arrangement is a formal agreement between you and your creditors to repay a portion of what you owe, usually over fi…
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Instalment Loan
An instalment loan is a loan repaid in fixed regular payments (instalments) over a set period. Personal loans, car finance, and many guarant…
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Interest
Interest is the cost of borrowing money, expressed either as a regular payment or as a percentage rate. When you borrow, you repay the origi…
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L
2 terms
Lender
A lender is an organisation or individual that provides money to borrowers under an agreement to be repaid, usually with interest. Banks, bu…
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Loan to Value (LTV)
Loan to Value is the size of a secured loan or mortgage expressed as a percentage of the property's value. A lower LTV means a larger deposi…
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O
2 terms
Open Banking
Open Banking is a UK framework that lets you securely share your bank account data with authorised third-party services. It powers many elig…
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Overdraft
An overdraft allows you to spend more than you have in your bank account, up to an agreed limit. Arranged overdrafts are agreed in advance; …
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P
3 terms
Payday loan
A short-term, high-cost loan designed to be repaid on your next payday. APRs on payday loans are typically very high — sometimes thousands o…
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Personal Contract Purchase (PCP)
Personal Contract Purchase is a UK car finance agreement with a deposit, lower monthly payments than HP, and a large optional final payment …
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Priority debt
Priority debts are debts where the consequences of not paying can be most serious — such as losing your home, having your energy supply cut …
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S
5 terms
Scottish Trust Deed
A Scottish trust deed is a formal Scottish insolvency procedure, usually lasting four years, in which a person transfers their assets to a t…
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Section 75
Section 75 of the Consumer Credit Act 1974 makes a credit card provider jointly responsible with the retailer for goods or services that cos…
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Secured loan
A loan backed by collateral — usually your home. If you fail to repay, the lender can repossess the asset. Secured loans typically offer low…
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Sequestration (Scotland)
Sequestration is the Scottish equivalent of bankruptcy in the rest of the UK. It is a formal insolvency procedure that writes off most unsec…
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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-approvals and your o…
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