Glossary of financial terms for secured loans, unsecured loans and debt consolidation loans
Adverse Credit
A bad credit record, poor credit history such as CCJ's, repossession orders, IVA's or arrears.
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AER
The Annual Equivalent Rate is the figure that helps with comparisons of one financial product with another, and is generally quoted on interest paid on savings and investments. It shows what the rate would be if interest was paid just once a year.
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APR
Annual Percentage Rate of charge. This is the true rate of interest that is charged on a loan,
it takes into account the total cost of interest and any other charges e.g. brokers fees/legal fees.
All lenders are required by law to tell you what their APR - Annual Percentage Rate - is before you sign an agreement.
The rate quoted on loans and credit cards may be the monthly or annual rate of interest you pay,
but the APR figure calculates the total amount of interest that will be paid over the whole
term of the loan, so the lower it is the better for the borrower.
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Assurance - Life
A specific type of life insurance policy that can be linked with a mortgage or loan. A percentage
of the premium goes toward insuring your life, and would pay off the loan in the event of your death.
The rest is invested and would pay you a lump sum at the end of the term.
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Assurance - Level Term
Life assurance that pays out a lump sum if you should die during the term. This is suitable for
interest only loans as the amount owed on the loan remains the same throughout the period of the loan.
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Audit
An audit is an evaluation of an aacount. It is performed by a competent, independent, objective, and
unbiased person or persons, known as auditors. The purpose is to make an independent assessment based on
management's representation of their financial condition (through their financial statements).
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Banker's Draft
This is a cheque made out to the creditor by the debtor's bank, it is drawn on the banks funds rather
than the debtor's and is considered more secure than a personal cheque.
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Bankruptcy
This is when an individual who cannot pay their debts has been served a Bankruptcy order by a court. The petition
can be filed by the individual or by his creditors. For a first-time Bankruptcy within a 15 year period for debts
under £20,000 the procedure is known as a Summary Administration, and you may be discharged after two years. A
first-time bankrupt with debts over £20,000 may be discharged after three years.
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Broker - Mortgage/Finance
An intermediary who finds and places customers who need a loan or mortgage with the lender most
suitable to provide it. The broker normally carries out all administration and paperwork to do with
processing the loan.
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Cashback
Type of loan where the borrower is given back a sum of money (usually a percentage of the loan).
Commonly used by lenders as an incentive to promote their products.
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CCJ
County Court Judgement. A court order against a debtor to pay money owed.
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Credit rating
A points rating used by banks, mortgage companies and other financial institutions that offer loans. An individual or company is assessed for credit worthiness and risk. Your credit report is compiled by credit reference agencies using public records, such as: the electoral roll, court judgments and bankruptcies and also information from other lenders and financial institutions.
If you are declined credit the lender should inform you the main reason for this. If the decision was based upon a bad
credit report, you should obtain the name and address of the Credit Reference Agency they used. You have the right to
view the information contained in your credit report to make sure it is accurate.
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Debt Management
A Debt Management Plan (DMP) enables you to make reduced repayments to your creditors over a number of years.
A debt management company will negotiate the payments with your creditors on your behalf.
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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.
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Double Insurance
Policies can vary from lender to lender. Normally 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. Freedom Finance strongly recommend
that you consider some form of insurance protection, especially in the case of secured loans and
mortgages.
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Fixed Rate
The rate is fixed for a specific number of years, so you know exactly what your
payments will be over that period. Following this period, the rate will usually return to the
lender's standard variable rate.
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Flexible Loan
The lender gives you a credit limit which allows you to then decide how much you need to borrow,
when you want to borrow it, and how much you repay each month. You will probably pay a higher rate of
interest than with a regular fixed rate loan. However, the interest with a flexible loan is calculated
daily on the outstanding balance, so if you make an over-payment you will immediately reduce the overall
amount you pay.
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IFA
Independent Financial Advisor.
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Insurance Term
A life insurance policy that is often linked with a mortgage or loan. The premium
goes towards insuring your life, and will pay off the loan in the event of your death.
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Interest Only Loan
The monthly repayment covers only the interest element of the loan leaving the
capital outstanding at the end of the loan terms.
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Lender
The actual company that provides the finance to meet with a request for a loan or mortgage.
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Loan - Secured
The equity in the property is used as security against the loan not being repaid.
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Loan - Unsecured
The credit rating or financial position of the applicant is such that no security for the
loan is required.
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LTV
Loan To Value. This is the size of the loan or mortgage as a percentage of the value of the
property or price being paid for the property e.g. A property valued at £60,000 with a mortgage
of £54,000 would have an LTV of 90%.
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MCRI
Mortgage Code Register of Intermediaries. A register kept by the Council of Mortgage Lenders
of the names of all mortgage brokers that subscribe to the Mortgage Code.
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MGI
Mortgage Guarantee Insurance. An insurance policy designed to make good any shortfall between
the amount owed on a mortgage and the value of the mortgaged property. Provides a benefit to
the lender in the event of repossession resulting from non-payment.
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Mortgage
A loan to purchase a home where the property is used as security in the event of non-payment
of the mortgage.
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Negative Equity
A situation where the amount owed on a mortgage exceeds the value of the property.
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Rate - Capped
Usually a rate for a set number of months/years where the interest rate can go up and down
but there is a maximum (capped) interest rate which it can not go above.
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Rate - Variable
A rate of interest which may vary up or down during the period of a loan.
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Re - Mortgage
If you would like to extend or improve your home re-mortgaging can help. Also if you wish to
release capital in your home for a car, a holiday, consolidate any existing loans you already have
to reduce your monthly outgoings, then re-mortgaging may be the answer.
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Representatives
Local representatives (Reps) who are available, if required, to pay home visits to give help and
advice in the completion of loan applications.
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Repayment Mortgage
With a repayment mortgage you pay part interest and part capital repayments to the lender each
month and in this way the capital that you borrowed is reduced until the loan is repaid.
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RTB
A term associated with legislation that gives council house tenants the "Right to Buy" their homes.
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Security Address
When taking a secured loan or mortgage, the security address is the address of the property
which is being offered as collateral for the loan. Where property is offered as security in this
way, lenders are generally prepared to offer more flexible terms and lower interest rates.
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Self - Certified
Lenders that operate this type of scheme allow the applicant to confirm how much they earn by
"Self-certifying" their income. Schemes are available to self-employed applicants. There is
no need for full 3 years audited accounts to be provided.
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Single insurance
Policies can vary from lender to lender. Generally single insurance offers protection against
sickness, accident and redundancy for the main wage earner. Cover is also available for
self-employed borrowers. Details of the specific insurance plan will accompany the lenders offer.
Freedom Finance strongly recommend that you consider some form of insurance protection, especially
in the case of secured loans and mortgages.
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Stamp Duty
A tax (currently 1%) paid on the purchase of properties costing more than £60,000.
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Status
The credit-worthiness or otherwise of a potential borrower.
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Structural Survey
A detailed survey of the structure of a building carried out by a Structural Engineer or
Chartered Building Surveyor. Surveyors are liable for negligence.
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Term
Period of a loan expressed in months or years.
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Underwriting
The process by which the ability of a prospective borrower to repay a loan is assessed
(this is also the name of the department that undertakes this work). The process takes into
account various factors including employment history, financial status, previous credit history
and current earnings.
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Valuation
A brief inspection of a property for mortgage purposes confirming the suitability of a
property to secure money against and its value.
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