Financial Jargon Buster

Annual Equivalent Rate (AER)
Used to compare interest rates on savings accounts. Usually the higher the rate, the better.

Annual Percentage Rate (APR)
The actual yearly cost of a loan, including interest and charges. Usually the lower the rate, the better.

Assets
Things that are owned such as cars, property and money.

Bankruptcy
A process of legally declaring that a person cannot repay their debts, and providing protection for the debtor (the person who owes money).

Budget
A financial plan drawn up for an individual, a family, a business or a government. It is usually for a period of a month or a year, but can be for longer.

Charge Card
Similar to a credit card, but the holder has to pay off the balance in full every month.

Collateral
Something owned by a borrower that a lender has a right to take possession of if the borrower defaults on payment (stops making repayments).

Compound interest
Interest paid or received on both the original amount of a loan or investment, and on any interest which is added to the loan or investment.

Cost of loan
The total cost of a loan which includes interest plus charges, fees and so on.

County Court Judgement (CCJ)
A court order which decides if you owe a creditor money and, if so, how you will pay the money back.

Credit
Money to buy goods or services that the lender will require to be paid back in the future.

Credit card
A card used to borrow money or to pay for purchases. The card allows the cardholder credit which they can repay monthly.

Credit history
A record of credit someone has had in the past.

Credit note
When returning a product rather than giving you cash a shop may give a voucher equivalent to the value of the returned product which you can use when you go back to the shop in the future.

Credit reference agency
An organisation that collects information on people’s credit history, and reports to prospective lenders.

Credit sale
This is where you pay for goods in installments, usually with interest. The supplier cannot repossess the goods if you fall behind in repayments but can take court action to recover money owed.

Creditor
A person or business money is owed to.

Curriculum Vitae (CV)
A document designed for potential employers which outlines your personal details, qualifications and work experience.

Debit card
A card issued by a bank. Used in a similar way to credit cards, but the amount is taken from the bank account immediately.

Debt
Money owed to another person or business.

Debtor
A person or business who owes money to another person or business.

Default
When an individual or company fails to meet loan repayments.

Earnings See Income.

Financial Planning
The process of setting financial goals, and producing plans (for example, budgets) to achieve those goals.

Gross income
The full amount of money earned (that is, before deductions such as tax).

Guarantor
A person who guarantees that they will make loan repayments if the person who is actually borrowing money fails to keep up with repayments.

Hire purchase (HP)
A form of credit involving a down payment followed by regular monthly payments. Until the payments are finished, the goods belong to the credit company, and the user is hiring them from that company.

Income
Amount of money received or earned over a period of time.

Income tax
A tax on personal income.

Individual voluntary arrangement (IVA)
An alternative to bankruptcy. It is an agreement between a debtor and their creditors to pay them off over a period of time.

Interest
Money that you earn on money you keep in a bank account, or money you pay for borrowing money. 

Interest rate
The amount of interest paid or charged (given as a percentage).

Liabilities
These are the same as Debts.

Loan
An agreement between a lender and a borrower. The borrower agrees to repay the money borrowed over a period of time – with or without interest.

Minimum payment
The smallest amount you can pay towards money you owe on a credit card. It is stated on your monthly statement.

Mortgage
A loan to finance buying a house, with the house given as security for the loan.

Mortgage provider
The financial company providing your mortgage. Generally a bank or building society.

National Insurance
A deduction made from your pay by the government to fund things like pensions and unemployment benefits.

Net income
The amount of income after all deductions (for example, tax and National Insurance). Also called take home pay.

Overdraft
An arrangement with a bank which allows customers to withdraw more funds from a current account than they have in the account. It is a form of lending.

Payment-protection insurance
Insurance to make repayments on a loan if for a specific reason you cannot make the repayments. In many instances this insurance is expensive and only pays out in a very small range of circumstances.

Repossession
A legal process which involves a lender taking possession of a property which has been pledged as security for a loan, or a hire-purchase company taking possession of the goods, when repayments haven’t been made.

Savings account
A bank account which pays interest. It is not designed as a day-today bank account.

Secured loan and credit
A loan with property or other assets as security.

Security See Collateral.

Store card
A store card works like a credit card, but only can be used in the store that issued it.

Take-home pay See Net income. 

Tenancy agreement
The legal document between you and your landlord covering rent payments and restrictions on what you can do in the property etc.

Term
The period over which a loan is scheduled to be repaid or an investment runs.

Unpaid balance
The amount still owed on an account.

Unsecured loan and credit
A loan not backed up by collateral or guarantee of any sort.

Utilities
Services such as gas, electricity and water.

VAT or Value Added Tax
A government tax added to the purchase price of products.

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