Understanding Loan Jargon

A, B, C, D, E, F, G, H, I, J, K, L, M, N, O, P, Q, R, S, T, U, V, W, X, Y, Z

A

Absolute title

Land registered with the Land Registry, where the owner has a guaranteed title to the land.

Acceleration Clause

A section of a contract which states how a loan may be required to be repaid early should the borrower default on other clauses of the contract.

Accident, Sickness and Unemployment Insurance

Income protection in the event of an accident, or illness, or redundancy resulting in unemployment. This pays out as a monthly tax-free income. There's a set period you have to wait before receiving a payout. The longer you wait the cheaper your monthly premiums. This sort of insurance can give you real peace of mind.

Acceptance credit

A line of credit given by a bank to an importer against which an exporter can draw a bill of exchange.

Actuary

A statistician who calculates probable lifespans so the insurance premiums can be accurately determined

Adjustable rate mortgage

A mortgage where the interest rate changes according to the current market rates

Adjusted Gross Income

The amount of annual income that someone has after various adjustments for income or corporation tax purposes.

Ad Valorem

A tax or commission that is calculated on the value of goods or services provided, rather than on their size or number e.g. Value Added Tax.

Adverse Credit

A person with a history of failing to keep up credit agreements is referred to as having an adverse credit history. Anyone who has become bankrupt, has County Court Judgments (CCJs) against them, has mortgage arrears or have made late payments on any credit arrangement can be described as having adverse credit. People with averse credit ratings usually have to pay higher interest rates on a loan or mortgage. But those with a poor credit rating, may find that taking out a Secured Loan as opposed to an unsecured loan will mean that they benefit from lower interest rates.

Addendum

An appendix or addition to a contract.

Additional Principal Payment

This is additional money included in the monthly payment to reduce the principal and so shorten the term of the loan.

Add-on-interest

The interest paid on the principal for the duration of the loan.

Adjustment Date

The date when the interest rate changes on a variable rate mortgage.

After-Acquired Collateral

Collateral for a loan that a borrower obtains after making the contract for the loan.

Age Analysis of Debtors

The amount owed by debtors, classed by the age of debt

Aged Debt

A debt that is overdue by one or more given periods.

Aged Debtor

A person or organization responsible for an overdue debt

Alienation Clause

This clause requires the borrower to pay the balance of the loan after the property is sold.

APR or Annual Percentage Rate

This is the rate of interest that would exist if it were calculated as simple rather than compound interest.

This is helpful to compare the different interest rates on offer. It takes into account the costs of setting up the loan, how often interest is charged, any discount rates, and is a measure of the average rate of interest over the duration of the loan. All lenders must, by law, inform the borrower of the APR, and it's calculated in a uniform way.

It is calculated by the formula:
APR = ( 1 + i/m)m - 1.0
Where i is the interest rate quoted as a decimal and m is the number of compounding periods per year

Application

A document showing a potential borrower's income and debts in order to determine credit worthiness.

Application Fee

A fee a lender charges to process a loan application.

Applied Nominal Interest Rate

The rate used to calculate the interest due.

Arrears

Arrears refers to the situation when the borrower misses one or a series of monthly payments. The payment is normally a direct debit. If this happens the borrower is wise to contact the lender as soon as possible as they may be able to assist.

Arrears Fee

When a loan account is in arrears this is the monthly charge to cover additional administration costs cause by the arrears.

Level Term Assurance

Life assurance which pays out a lump sum if you die during the term. This is suitable for interest only loans as the amount owed on the loan remains the same throughout the duration of the loan.

Asset

Any property, stock, shares, savings and personal possessions a person owns which has a cash value.

Asset Conversion Loan

A loan that the borrower will repay with money raised by selling an asset.

Assumable mortgage

A mortgage that the buyer of the property can take over from the seller

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BACS

Bank Automated Clearing System is an electronic clearing system used by banks and building societies for low-value, repeat items such as direct debits, standing orders and automated credits e.g. salary payments.

Back-to-back loan

An arrangement by two companies in different countries who borrow in each other's currency and repay at specified future date in its domestic currency. Such a loan, often between a company and its foreign subsidiary, eliminates the risk of loss from exchange rate fluctuations.

Bad Credit

Is when a debt is considered to be uncollectable and is written off either as a charge to the profit and loss account or against an existing doubtful debt provision. It's a term to describe a poor credit rating from Credit Reporting Agencies.

Bad Debt Provision

An accounting estimate of the amount of debts which is thought likely to be written off

Bad Debts Recovered

Money which had been classed as Bad Debts and written off that has since been recovered either in total or part.

Balance Outstanding

The amount of a loan that still has to be repaid.

Balloon Loan

A mortgage where the monthly instalments aren't large enough to repay the loan by the end of the term. Consequently, the final payment due is the lump sum of the outstanding principal.

Balance Transfer

Moving the outstanding balance of a debt on one or more credit cards to another card so as to get a lower interest rate.

Bank Card

A plastic card issued by a bank and accepted my merchants as payment for transactions e.g. credit cards and debit cards.

Bank Confirmation

The verification of balances requested by an auditor from a bank

Bank Credit

The maximum credit available to an individual from a particular bank

Banker's Reference

A report issued by a bank on a particular customer's creditworthiness

Bank Mandate

A written order to a bank, asking them to open an account and allow someone to sign cheques on behalf of the account holder.

Bank of England

The central bank of the UK. In 1997 it was granted sole responsibility for setting base interest rates

Bank Overdraft

Borrowings from a bank on a current account which are payable on demand. A maximum limit is normally agreed prior to the facility being available, and interest, calculated daily, is charged on the amount borrowed.

Bankruptcy

A person who has been declared by a court as unable to meet his or her debts.

The condition of being unable to pay debts, with liabilities greater than assets. There are two types
a) Involuntary bankruptcy where one or more creditors bring a bankruptcy petition against the debtor
b) Voluntary bankruptcy, where the debtor files a petition claiming inability to meet his or her debts.
Bankruptcies remain on a credit record for seven years.

Bank of England Base Rate

The rate of interest set by the Bank of England that is followed nearly all lenders and so influence variable rate loans in the UK.

Bank Term Loan

A loan from a bank that has a term of at least one year.

Base Rate

The interest rate at which the Bank of England lends to other banks. This determines the rate at which bank subsequently lend to their customers

Before-tax-income

Total income before taxes are deducted.

Belt and braces man

A very cautious lender who asks for extra collateral for a loan

Beneficial Interest

An arrangement where someone is allowed to occupy or receive rent from a house without owning it.

Benefit Period

An introductory period where the interest rate of a loan is discounted, fixed or capped.

Bilateral credit

This is credit allowed by banks to each other in a clearing system to cover the period which cheques are being cleared.

Bill Discount

This the interest rate that the Bank of England charges banks for short-term loans. This establishes the interest rate that banks charge their customers which is usually a fraction about the discount rate.

Biweekly Loan

A loan that requires payments every two weeks.

Body of creditors

The creditors of an individual or company treated as a single creditor in dealing with the debtor

Bridging Loan

A temporary loan providing funds until further money is received e.g. for buying one property while trying to sell another.

Broker

A Broker is an intermediary who offers loans and insurance policies.

Brokerage rebates

The percentage of the commission paid to a broker which is returned to the customer as an incentive to do more business

Brokered market

A market in which brokers bring buyers and sellers together.

Broker loan rate

The interest rate that banks charge brokers on money that they lend for purchases on margin

Building Society

A financial institution that offer interest-bearing savings accounts, the deposits are reinvested by the society in long-term loans, mainly mortgage loans for buying property.

Bullet Loan

A loan that has specified payments of interest until maturity, when the principal is repaid.

Buy and hold

An investment strategy based on retaining securities for a long time

Buyer's market

A situation in which supply exceeds demand, prices are relatively low, and the buyers have an advantage

Buying economies of scale

A reduction in the cost of purchasing raw materials due to the increased size of the purchase.

Buy-to-let mortgage

A loan you take out to buy a property that you intend to rent to tenants.

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Call Option

A clause which allows a lender to ask for the balance at any time.

Cancellation Clause

A clause which outlines how either party can terminate an agreement.

Capital Repayment Mortgage

Payments contribute to both the interest on the mortgage and the capital borrowed. At first payments contribute mainly to the interest, then in the later stages a higher percentage will repay the capital.

Cap

A limit on the amount the interest rate can increase for a variable rate loan.

Capped Rate

An interest rate on a loan that can change, but can't be greater than a set rate fixed at the time the loan was taken out.

Capital

The original amount of money borrowed, not inclusive of any interest charged.

Cashback

A seller offers customers a cash refund after they purchase a product

Caveat Emptor

A legal principle that the buyer alone is responsible if dissatisfied. Derived from the Latin "let the buyer beware."

Central Bank

The bank of a country that controls its credit system and money supply

Certificate of deposit

A negotiable instrument which provides evidence of a fixed-term deposit with a bank

Certificate of Satisfaction

This is issued by the County Court after a CCJ has been settled.

County Court Judgement or CCJ

A County Court Judgement is a judgement in the County Court for the repayment of an outstanding debt. This debt will not appear in the credit records if this debt is settled within 30 days of the date of the judgement. Many lenders are not willing to offer loans to anyone with an unsettled judgement, there are however, a number of lenders that specialise in arranging credit for people with an adverse credit rating such as CCJ's.

CHAPS

Clearing House Automated Payment System. A method for rapid electronic transfer of funds between banks.

Charge

The security the lender relies on when issuing a mortgage.

Charge card

A credit card for which a fee is payable but which does not allow the user to take out a loan. The customer must pay off the total sum or a proportion of the total sum at the end of each month.

Chargee

A person who holds a charge over a property and who has the right to force a debtor to pay

Chattel Mortgage

Money lent against the security of an item purchased, but not against a property.

Cheap Money

Low interest rates, use as a government strategy to stimulate an economy.

Cheque

A bill of exchange drawn on a bank, payable on demand

A certificate issued from the Land Registry that shows details such as the boundaries of a property.

Chose in action

A personal right which can be enforced or claimed as if it were property e.g. a patient, copyright or debt.

Circularisation of debtors

The sending of letters by a company's auditors to debtors in order to verify the extent of the company's assets.

Closed-end credit

A loan, plus interest and charges, that is to be repaid in full by a specified future date. Loans with property or cars as collateral are usually closed-end.

Closed-end mortgage

A mortgage in which no prepayment is allowed

Collateral

A security pledged as a guarantee for repayment of a loan. Should the borrower fail to repay the loan then the property, or other asset, can be repossessed.

Collateralise

To secure a loan by pledging assets. If the borrow defaults on loan repayments, the pledged assets can be taken by the lender

Collection

The steps a lender takes to bring a delinquent loan/mortgage up to date.

Comparative credit analysis

An analysis of risk associated with lending to different companies

Compound interest

Interest calculated on the sum of the original borrowing amount and accrued interest.

Compound rate

An interest rate of a loan based on its principal, the amount remaining to be paid, or any interest payments already received.

Consolidated debt

The use of a large loan to eliminate smaller ones

Consolidated loan

A large loan, the proceeds of which are use to eliminate smaller ones

Consumer Credit Act

Gained Royal Assent in 1974. It is designed to protect consumers when borrowing money.

Contractual Lien

A voluntary obligation such as a mortgage or trust deed.

Contribution

An amount of money paid into an account. This can be on a regular basis or a 'one off' payment.

Consolidation

Putting all your debts into one place, can be referred to as debt consolidation. This can help reduce monthly payments. Consolidation is good if you have multiple personal loans and credit cards which you'd like to pay off. Instead of multiple repayments, these are brought into one affordable monthly payment.

Co-signer

A person who assumes joint liability for a loan. But not necessarily a co-owner of the asset.

County Court Fee

This is charged when a lender starts county court proceedings when the borrower is in arrears.

Cover

The taking out of insurance by an individual in order to protect against loss, damage, risk or liability. For example, Life insurance pays your family if you die.

Cover note

A document that an insurance company issues to a customer to serve as a temporary insurance certificate until the issue of the policy itself.

Credit

The amount of money left over when an individual has more assets than liabilities.

The trust that a lender has in a borrower's ability to repay a loan

Credit Agencies

Companies who issue credit reports to loan providers. The reports give individual assessments of loan applicant's creditworthiness.

Credit Agreement

An agreement between the lender and borrower detailing the various terms and conditions. This must be signed before the borrower receives their loan.

Credit Balance

The amount of money a person owes on a credit account

Credit Capacity

The amount of money a person can borrow and be expected to pay back.

Credit Card

A card issued by a financial institution and accepted by merchants as payment for a transaction. The card holder must subsequently reimburse the card issuer.

Credit Checks

These are checks made when a borrower applies for credit or to purchase goods on hire purchase, and are used to determine the risk of lending money. The borrower's credit history is examined and checked for payment defaults.

Credit Co-operative

An organisation of people who have formed a group to gain advantages in borrowing

Credit Crunch

This is a situation where money for borrowing becomes unavailable

Credit History

A potential borrower's record of repaying debts.

Creditor

A business or organization to whom money is owed, in other words a lender.

Credit Limit

This is the highest amount a lender will allow a person to borrow.

Credit Note

A document which state the amount of money owned and entitles the holder to goods to the specified value.

Creditors' meeting

A meeting of those whom a bankrupt person owes money

Credit Period

The time frame for which the lender agrees to provide supply credit.

Credit Rating or Credit ranking

The degree of credit worthiness assigned to an individual based on their credit history and financial status. An assessment of a person's creditworthiness or process of obtain it.

Credit Reference Agency

A business that assesses people's creditworthiness on behalf of banks and businesses. These companies are used by loan providers to make individual assessments. They keep credit records of all individuals and businesses. Examples of credit reference agencies are Experian and Equifax.

Credit References

These are details the credit that a borrower has been given in the past, supplied as references when opening a credit account with a new supplier.

Credit Report

Information about a person that's relevant to deciding to grant them credit.

Credit Risk

The possibility that loss may happen from the failure of someone to perform according to the credit contract

Creditors' settlement

An agreement for part repayment to those whom a bankrupt person owes money.

Credit Score

A calculation that each lender makes in the process of credit rating

Credit Standing

The reputation a person has for fulfilling their financial obligations

Credit Union

This is a savings co-operative association who lend money to members a low interest rates

Creditworthy

To be considered suitable to receive commercial credit.

Critical Illness Insurance

This is insurance cover for an individual for life or for a set period against serious illnesses and medical conditions. It pays out a single tax-free lump sum when the diagnosis of one of the illnesses specified in the policy.

Current Account Mortgage

A long term long, usually for buying property, where the borrower pay interest on the sum loaned in monthly instalments and repays the principal as a lum sum at the end of the loan term. The lender takes into account the balance on the borrower's current or savings account when calculating the interest payments. It's the borrower's responsibility to make the necessary provision for the principal during the period of mortgage; this could be by contributing to tax efficient investment plans such as Individual Savings Accounts, or by relying on inheritance.

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Daily Interest

Interest on the Secured Loan is calculated on a daily rather than a monthly or yearly basis.

Debt Card

A card issued by a financial institution and accepted by merchants as payment for transactions. The cardholder's account is deducted immediately, as with a cheque.

Debt

The amount of money owed to a lender.

Debt Capacity

The extent to which an individual can support a loan

Debt Consolidation

This is the combining of several debts by borrowing the amount owed through one new debt. It is often possible to reduce monthly outgoings by doing this. Savings are made by converting unsecured debts to secured debts because the interest rates on secured loans are usually lower than for unsecured loans.

Debt Consolidation Loan

A debt consolidation loan is advantageous a person has multiple loans and store cards and wants to consolidate several monthly payments into one monthly repayment. Then there's no need to worry about what needs to be paid and when, the borrower knows the exact amount and date when payment goes out each month. A debt consolidation loan can help reduce monthly repayments and free up disposable income.

Debt Collection Agency

A business that aims to secure, for a commission, the repayment of debits on behalf of third parties.

Debt Counselling

An advise and support service offered to people who are financial stretched

Debtor

A person who owes a debt.

Debt-to-Income-Ratio

A ratio used by lending institutions to assess whether a person is qualified for a mortgage or secured loan. Debt-to-income ratio is the total amount of debt, including all other loans, divided by total gross income.

Deed

A legal document that usually details the transfer or sale of a property.

Deed of Arrangement

A legal document which states the agreement between an insolvent individual and their creditors

Default

When one or more mortgage payment are missed, the borrower is said to as being in default. This is to fail to comply with a binding legal agreement, such as failure to repay a mortgage debt.

Default Notice

A formal document issued to a borrower who is in default.

Deferral Period

In payment protection policies this is the length of time after you are unable to work before you can start to receive the insurance payouts.

Delinquent Loan

A loan that involves a borrower who is behind on payments and in arrears.

Discounted Rate

A discounted rate gives a reduction off the standard variable rate (SVR) for a stated period. Whether the SVR rises or falls the borrower still qualifies for a lower discount rate during this period.

Direct Debits

A payment made from a bank account automatically to pay a bill. A direct claim on someone by a creditor, and paid via the borrower's bank. Variation in the payment period are admissible.

Direct Lenders

Direct lenders provide financial services over the telephone and through the internet. Lower overheads and costs resulting in delivering cheaper products. Also there is the convenience of arranging a mortgage/loan outside working hours from home.

Disability Insurance

An insurance policy which covers an individual's wage earning ability.

Discounted Loans

With a discounted rate loan the interest charges is reduced below the Standard Variable Rate for a specified period. This can be for up to 5 years. However, once the discounted period is over, the borrower reverts to paying the current Standard Variable Rate. It is the discount that is fixed and not the actual rate.

Discharge Bankrupt

Someone who has been officially released from being bankrupt because they have paid all outstanding debts.

Dishonour

To refuse payment of cheque because there is insufficient funds in the account

Distressed Property

A property bought with a loan on which repayments have stopped and the borrower has defaulted.

Double Insurance

Double insurance offers protection against accident, sickness and redundancy for the first and second wage earners.

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Easy money

A government policy which expands the economy by increasing public access to money, via lower interest rates and offering easy access to credit.

Early-repayment charge

A charge you may have to pay if you pay back a mortgage early (including if you move to another lender).

Economies of scale

Reduction in average unit costs that happens when the scale of production is increased.

Effective Annual Rate

The average interest rate paid on a deposit for a period of a year. The total interest added over 12 months is expressed as a percentage of the principal at the beginning of the loan.

Endowment Mortgage

A long-term loan for a property in which the borrower makes two monthly payments. One to th lender to cover the interest on the loan, and the other as a premium paid into an endowment assurance policy. When the loan finishes, the pay out from the endowment policy is used to repay the principal.

Endowment Policy

An insurance policy that pays a set amount to the policyholder at maturity, or to a beneficiary if the policyholder dies before it matures.

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Final Demand

A last reminder from a supplier to a customer to pay a debt. This is the often the last stage before the supplier start legal proceedings.

Final Discharge

The last payment on the amount outstanding on a debt.

Financial Advisor

A person whose job is to give investment advice

Financial Ombudsman

An organisation responsible for resolving complaints from the public about money matters.

Financial Services Authority

An independent body form in 1997 to: maintain market confidence, increase pubic knowledge of the financial system, give consumers the necessary protection and help fight financial crimes.

Finder's Fee

A fee paid to a person who finds a client for another company.

Fixed-Interest Loan or Fixed Rate Loan

A loan whose rate of interest stays the same

Forced Sale

A sale which happens because of a court order or because it's the only way for an individual to avoid a financial crisis

G

Gazump

This is where a seller verbally agrees a sale with a buy but then, before the agreement becomes legally binding, accepts a higher offer from another buyer. Gazumping is associated with the property market, but can happen in any market where prices are rising rapidly.

Guarantor

A person who guarantees repayment of a loan if the borrower defaults or can't pay.

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Homeowner

A person who owns his or her own residential home.

Home improvement loan

A home improvement loan gives the borrow the cash funds to make improvements their property. This could be extra space as home extension, conservatory, loft conversion, new bathroom or kitchen.

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Indemnity Insurance

An insurance contract where the insurer agrees to cover the losses of the insured party. Most insurance contracts are of this form, except life assurance and personal accident where the fixed sums are paid out as compensation.

Independant Financial Advisor or IFA

An intermediaries who looks at the entire financial market before and give advise about investments. They sometimes have access to exclusive deals not available elsewhere.

Individual Voluntary Arrangement

A binding arrangement between creditors and debtors by which the debtors offer the creditors the best offer they can afford. This is done to avoid bankruptcy.

Impaired Credit

Impaired credit loans are specialist products for customers whose credit problems disqualify them from using the standard lenders.

Incidence of Interest Calculation

This is the frequency that the interest and outstanding loan repayments are calculated. If this is calculated every day it benefits the borrower who immediately gain from the reduction in the size of the outstanding loan. So long as the borrower is paying on time, the more often interest is calculated the better. This is a feature of flexible mortgages. When the interest is calculated annually, then the payments made throughout the year have no impact on reducing the amount paid.

Income Multipliers of Multiples

The size of the mortgage that lenders offer is often worked out by multiplying the borrower's income each year by a set factor.

Income References

This is conformation provided by an employer of stated income of the employee who is applying for a loan. Or it is the certified business accounts if borrower is self employed.

Income Protection Insurance or Income Replacement

An insurance policy for getting regular income in the event of illness or redundancy.

Insurance

An arrangement in which a person pays a company to guarantee them compensation if they suffer loss as a result of accidental damage, fire, theft etc.

Insurance Excess

This applies to insurance claims and is the first part of any claim that must be covered by the claimant. Increasing the excess can significantly reduce the premium.

Insurance Broker

A company or person who acts as an intermediary between individuals needing insurance and companies providing it.

Insurance Policy

This document defines the terms and conditions for providing insurance cover against the stated risks.

Interest

The extra amount the lender charges the borrower for a Homeowner or Secured Loan. A lender charges this rate for the use of the loan money.

Interest Arbitrage

Transaction between two financial centres to exploit differences in the interest rates

Interest Charged

The cost of borrowing, expressed as an absolute amount, or as a percentage.

Interest Only Mortgage

A long-term property loan, where the borrower pays interest during the term of the mortgage. The principal is paid for at the end of the loan by some other way.

Interest Rate

The amount of interest that is charged for borrowing.

Interest Rate Cap

An upper-limit maximum rate of interest e.g. on an adjustable-rate loan

Interest Rate Collar

A combination of an interest rate floor and an interest rate cap for the same loan.

Interest Rate Exposure

The risk of loss linked with movements in the rate of interest.

Interest Rate Floor

A lower limit on a rate of interest, for example, on a variable rate mortgage or loan.

Interest Rate Guarantee

A tailored indemnity that protects the purchaser against future changes in interest rates

Insurance Single

Insurance to protect the income of the applicant, so at to protect the repayment of the loan applicant. Split or double insurance to protect the income of the second wage earner.

Term Insurance

A life insurance policy that's often associated with a mortgage or loan. The premium goes towards insuring the borrower's life, and will pay off loan in the event of death. There is no payout after the policy expires.

Insurance Premium Tax - IPT

UK Tax on all general insurance.

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Joint Account

An account used by two people both of whom are responsible any debt.

Joint and Several Liability

A legal liability that is applied to a group of individuals as a whole. If one member doesn't meet their liability then the deficit is a shared responsibility of the others. Most guarantees of two or more people to secure borrowing are of a joint and several type.

Joint Income

The total gross income of the loan applicants.

Joint Liability

The responsibility of two or more people to meet the terms of the debt agreement.

Joint Life Annuity

An annuity that continues until both parties die. This is good for married couples because they can ensure that the surviving partner has an income for life.

Joint Mortgage

A mortgage shared between two people. If one dies the other inherits their share.

Judgment Creditor

This is the person who as brought a legal action and that the court orders the judgment debtor to pay.

Judgement Debtor

The person, in a legal action, who is ordered to pay the judgment creditor the money owed.

Junior Debt

A debit that has no claim on a debtor's assets, or less of a claim than another debt.

Judgement Lien

A court judgement or fine against a current or previous property owner that has not been paid.

Junior Mortgage

A mortgage that has less of a claim on a debtor's assets that the holder of another mortgage.

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Late Charge

This is a fee a lender inflicts on a borrower when the borrower fails make a payment on time.

Late Payment

A payment a lender receives after the due date.

Lender

The company that provides the finance for the loan or mortgage.

Lender of last resort

A central bank that lends to banks that can't borrow anywhere else.

Lender's Arrangement Fees

Admin costs incurred by a lender to secure a Secured Loan, which paid by the applicant.

Letter of Licence

A letter sent from a creditor to a debtor giving them a certain period of time to pay the money and undertaking not to bring legal action during that period.

Lessee

A person or company who holds a property by lease.

Lessor

A person or company who lets a property by lease

Level Term Assurance

A life policy that's often associated with a mortgage or loan. The premium goes towards insuring the borrower's life, and will pay off loan in the event of death. This is good for interest-only-loans as the amount owed remains constant throughout the life of the loan.

Liability

A sum of money that must be repaid i.e. a debt.

Liability Insurance

Insurance against legal liability that the insured might incur.

Lien

A legal claim over another's property to protect a debt charged on that property.

Life Assured

The individual who is covered by a life assurance policy.

Life Assurance or Life Insurance

Insurance that pays a specific sum to the insured person's beneficiaries after the death of the insured person.

Life-Cycle Saving Motive

This is a reason an individual has for saving or spending during the course of life e.g. when starting a family or approaching retirement.

Lifetime Cap

A limit on how high the interest rate can rise on a variable rate loan over the lifetime of the loan.

Line of Credit

An agreed loan facility that allows an individual to borrow money.

Loan

Something lent, esp. a sum of money to be returned normally with interest. A loan is money which is borrowed and has to be repaid, usually with interest and other associated costs. The amount to be repaid is according to an agreed schedule, over a set period of time and at an agreed interest rate.

Loan Agreement

A Loan Agreement, or Credit Agreement, sets out the responsibilities of the lender and the borrower. A Loan Agreement provides the borrower with: all the terms and conditions of the loan, details the amount requested to borrow, the term of the loan, the expected repayments and the APR.

Loan Application

The first step to getting a Homeowner Loan requires the borrower to specify basic financial information.

Loan Application Fee

A fee charged for a loan application.

Loan Consolidation

This is the combining of several debts by borrowing the amount owed through one new debt. It is often possible to reduce monthly outgoings by doing this. Savings are made by converting unsecured debts to secured debts because the interest rates on secured loans are usually lower than for unsecured loans.

Loan loss reserves

Money that a bank holds on to cover losses through defaults on loans

Loan Schedule

A list of loan payments: when they are due, and the outstanding balance after each payment is made.

Loan Secured

A loan secured against a property. Known as a Secured Loan.

Loan Term

This is how long you have to replay the loan and is normally expressed in years. You can choose a different terms if it suits you and the lender agrees that you can afford it. With a shorter term, you’ll have higher monthly payments but pay less in total. With a longer term, you’ll pay less each month but more in total.

Loan to Value Ratio (LTV)

The ratio of the loan amount to the value of the collateral. The amount of money needed to borrow compared (as a percentage) to the value of the property. The combined sum of the secured loan and mortgage is compared against the property value.

Low Start Mortgage

A long-term property loan in which the borrower only pays the interest on the loan for the first few years. After that the repayment cover the interest plus the original loan, just like a repayment mortgage. These are popular with first-time buyers

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Margin

The lender's profit or retail markup on the loan.

Marginal Lender

A lender who will a loan only at or over a particular rate of interest

Mortgage Guaranteed Insurance - MGI

An insurance policy which aims makes good of any shortfall between the amount owed on a mortgage and the property value. It gives a benefit to the lender if the borrower defaults and repossession happens.

Monthly Repayment

This is the amount a borrower pays the lender each month towards the cost of the loan.

Mortgage

A loan used to purchase a property. This is known as the first charge on a property. A subsequent secured loan would be considered a second charge.

Mortgage Acceleration Clause

A clause which gives a lender the right to demand that the entire balance of a Secured Loan be repaid in a lump sum under certain circumstances. The acceleration clause can be triggered if the home is sold, the loan is refinanced, title to the property is changed or the borrower defaults on payment.

Mortgage Broker

A company or person who acts as an agent between people seeking mortgages and those providing them

Mortgage Code Arbitration Scheme

An arbitration service between lenders and members of the public.

Mortgage Constant

The ratio of the annual interest on a mortgage to its principal.

Mortgage Deed

The document which details a loan used to purchase a property. The mortgage deed must be witnessed and be registered with the Land Registry. It can be referred to as a Legal Charge or, in Scotland, it is called a Standard Security. When mortgage or secured loan is repaid the Legal Charge ( or Standard Security ) is removed from the property.

Mortgage Debt

The amount outstanding on a mortgage.

Mortgage Discount

A percentage of a mortgage principal which is discounted when the mortgage is sold

Mortgage Equity Analysis

A calculation of the difference between the value of the property and the amount outstanding on the mortgage

Mortgage Lien

A claim against a property which is mortgaged.

Mortgage Life Assurance

Insurance for someone holding a mortgage in the case of the debtor's death.

Mortgage Rate

The interest rate charged on a mortgage.

Mortgagee

The creditor in a mortgage, usually. a bank or building society.

Mortgagor

The debtor or borrower of a mortgage.

Monetary Policy Committee - MPC

The Monetary Policy Committee of the Bank of England. This committee decides interest rates for the UK. It determines the value of cash. When interest rates go up then the money in people's savings account should increase and the amount people in debt have to pay goes up. When interest rates go down then savings account will pay out less interest and variable mortgage payments are also reduced.

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Negative Equity

The outstanding balance on a mortgage exceeds the current property valuation.

Non-Regulated Loan Agreement

This is a secured loan which is over £25,000 not regulated under the Consumer Credit Act 1974. This type of loan is not be subject to a cooling off period, so the lender can pay it out more quickly. The law is due to change on this subject in April 2008.

Net

The amount available after the deduction of tax. It's important differentiate between your net income and gross income when applying for a loan.

Net Monthly Repayment

The monthly repayment a borrower makes to the lender.

Non-recourse Debt

A debt where the borrower has no personal responsibility e.g. a limited partnership

Notice of Default

This is a lender's initial action when a mortgage payments are late.

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Offer of Advance

This document describes the terms and conditions upon which the lender is prepared to make a loan. The applicant has to sign a copy of the offer to indicate their acceptance of the terms.

Office Copies

These are copies of the documents held at Land Registry showing ownership and mortgages on a property.

Official Cash Rate

The current interest rate set by the central bank

Open-Ended Credit

A type of credit that doesn't have an upper limit on the amount that can be borrowed, or the time limit before repayment being due.

Open-Ended Mortgage

A mortgage where prepayment is allowed

Opportunity Cost

The amount of money that lost by selecting on investment rather than another

Outstanding Balance

This is the amount of the loan which required to be repaid at a given time.

Overpayment

The difference between the regular monthly repayment and a higher amount that the borrower decides to pay.

Over-repayments

This is used to describe making payments over and above those specified by the Secured Loan repayment schedule.

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Pay As You Earn - PAYE

The UK's system of collecting direct taxation that requires employers to deduct taxes from employee's pay before employers make payment.

Payment Cap

A limit on the amount a monthly repayment can increase with an variable rate loan.

Payment Default

This is where the borrower is unable, or unwilling, to meet the loan repayments. Different lenders will vary on how long they give the borrower before they start the legal proceedings to recover the loan.

Payment Holiday

A break from regular mortgage/loan repayments. This can very useful for self-employed people, or contract staff with irregular income.

Payment Protection Plan / Payment Protection Insurance

This is a type of insurance that can be taken out with a Secured Loan that will protect loan payments in the event of sickness, disability or redundancy. It's also known as life, accident, sickness and unemployment cover. It isn't compulsory to take out this type of insurance with your loan provider but it does give peace of mind.

Policyholder

A person covered by an insurance policy

Preferential Creditor

A creditor who is entitled to payment before other creditors

Premium

The amount paid for a contract of insurance or assurance

Prime Rate

The lowest rate that banks offer on loans

Private Debt

This is money owed by individuals and businesses rather than by the government

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Quasi-Loan

An arrangement where one party pays the debts of another, on the understanding that the total sum of the debts will be reimbursed by the other party at some later time.

Quick Ratio

This is a measure of the cash a borrower can obtain in a short time, and used as a measure of creditworthiness. The ratio of liquid assets to current liabilities

Quotation

A written illustration of the costs of a loan and in its repayment.

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Ratchet Effect

A household adjusts better to rising incomes than falling incomes.

Capped Rate

The interest rate can vary up and down but can't exceed the maximum capped interest rate.

Variable Rate

The interest rate charged on the loan may vary up or down during the life of a variable rate Secured Loan. The variation is due to market forces.

Real Interest Rates

An interest rate calculated by subtracting the rate of inflation from the nominal interest rate.

Rebate

A broker reduces part of the commission to a client as a promotional offer

Regulated Loan Agreement

Secured loans up to the value of £25,000 are regulated under the Consumer Credit Act 1974 (CCA). This gives a borrower rights which are not available for loans not regulated under Consumer Credit Act. The borrower is sent an advance copy of the loan agreement and has a cooling-off period of 7 days, during which the person arranging the loan is not allowed to contact the borrower, although the borrower may initiate or request contact. At the end of the consideration period, the borrower is sent signature copies of the loan agreement.

Remortgage or Remortgage Loan

A loan taken out by a borrower to replace another one secured on the same property. Normally, this is done to switching lenders and achieve an improved interest rate.

Repayment Mortgage

A mortgage in which you pay off both the loan and interest at the same time. A long-term property loan where the borrower makes monthly interest payments on the loan and payments toward repaying the principal. In the early years most of the payment goes toward covering the interest and less toward the principal. Whereas in later year most of the payment covers the principal and covers the interest.

Redemption Date

The date set by which a redeemable security is due to be repaid

Redemption Statement

The outstanding amount to be repaid on a Secured Loan.

Redemption Yield

The rate of interest at which the total of discounted future payments of capital and interest is equal to the current price of the security

Redundancy Insurance

An type of insurance which gives income protection in the event of job loss but does not cover any form of sickness, injury or disability insurance.

Reinstatement Value

The total cost of rebuilding the property should it be destroyed.

Remaining Balance

The amount of unpaid principal on a Secured Loan.

Repayment Period or Repayment Term

The period over which the borrower must repay the lender.

Repayment Plan

When a borrower falls behind in loan payments a lenders could decide to negotiate a repayment plan as opposed to starting court proceedings.

Repo Rate

The Bank of England base interest rate.

Repossession

The return of good bought on credit, when the purchaser fails to keep up with repayments

Restructured Loan

A loan where new terms are negotiated.

Retention

The amount of money retained by the lender from a mortgage advance until repairs or improvements are completed as specified by the Valuer.

Review of Rate

The interest rate charged on a loan can be reviewed either annually or monthly. This doesn't apply to fixed rate loan during any fixed period.

Right-to-Buy ( RTB )

A term associated with council house tenants who have the Right to Buy their homes.

Refer to Drawer Please Represent

This is written on a cheque by the paying bank to show there is insufficient funds to meet the payment, but the bank believe that more funds will be available soon.

Revolving Loan

A credit facility where the borrower can choose the number and time of withdrawals against their bank loan and any money repaid may be reborrowed in the future.

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Sealing Fee

A charge made by lenders when a mortgage is finally paid off.

Second Charge

A Second Charge is a second mortgage on your property. It is a second claim on the property.

Second Mortgage

A loan that uses equity on a mortgaged property, as security and taken out with a different lender. As the first mortgagee holds the property deeds, the second mortgagee has to register its interest with the Land Registry and can't foreclose without the first mortgagee's permission

Security

The collateral for a loan. This whatever is pledged as a guarantee for the Secured Loan.

Security Address

This is the address that is offered as security to the lender when a borrower applies for a Homeowner Loan or Secured Loan. The better the security, the better the terms for the loan - i.e. the better interest rate offered.

Secured

This is used to describe borrowing when the lender has a charge over the assets of the borrower. This type of loan requires property or collateral to be put up against the loan.

Secured Loan or Secured Home Loan

You can get a secured home loan against the collateral in your existing property, if you are a homeowner. Nothing beats the security of your own home. It is a guarantee that even if there there's an element of uncertainty in your life, your home remains a safe harbor. This fact need not change when, due to a change in circumstances, you're in need of a large amount of cash. Your home provides security for such circumstances, and that's why lenders are much more likely to lend with a Secured Loan. There are some very competitive products available.

Self-Certified

This type of scheme allows the applicant to confirm how much they earn by "Self-certifying" their income. This is useful when a self-employed person hasn't been trading long enough to have sufficient full audited accounts. Or for employed people where a large part of their income is bonus payments, or where their income comes from several jobs.

Self-employed

A person who is works freelance, as owner of their own business. They could be a sole trader or in a partnership but are not employed by an employer.

Self-Insurance

The method of saving money to pay for possible loss rather than taking out an insurance policy against it.

Self-Liquidating

Having enough income to pay off the amount borrowed

Senior Debt

A debt whose holder has more of a claim on the debtor's assets than an other holder of another debt.

Senior Mortgage

A mortgage whose holder has more of a claim on the debtor's assets than an other holder of another mortgage.

Servicing Borrowing

Paying the interest on a loan

Settlement

The payment of debt

Settlement Date

The date on which the outstanding debt is due for repayment.

Settlement Figure

The sum quoted in order for a Secured Loan to be fully repaid on earlier than the scheduled term

Sickness and Accident Insurance

A health insurance which may be sold with some form of credit. If the borrower is unable to work because of accident or illness then the policy covers the regular payments to the lender.

Simple Interest

Interest which is charged as a constant percentage of the principal and not compounded

Single Insurance

Insurance to protect the income of the applicant, so at to protect the repayment of the loan applicant. Split or double insurance to protect the income of the second wage earner.

Soft Loan

A loan on very favourable term e.g. a project the government considers worthy

Solvent

Having enough money or assets to meet one's liabilities

Sovereign Loan

A loan by a bank to an overseas government.

Spot Interest Rate

An interest rate that is decided when the loan is made.

Stamp Duty

A tax duty imposed on some types of legal document and shown to have been paid by a stamp being fixed to the document. For example, on the purchase of properties costing more than a certain amount.

Standard Security

This is the equivalent of the Legal Charge in Scotland. Standard Security is the Scottish legal term for what is known in England as a Mortgage Deed.

Statue-Barred Loan

A debt that cannot be pursued because the time limit laid down by law has expired.

Status

The creditworthiness of a potential borrower.

Structural Survey

A detailed survey of the structure of a property carried out by an appropriately qualified Building Surveyor.

Subordinated Debt

A debit that has no claim on a debtor's assets, or less of a claim than another debt.

Sub Prime Mortgage

Mortgage given to a person who is unable to borrow money secured on a property from a standard lending source.

Sum Insured

This is the maximum amount an insurance company will pay out when a claim is made.

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Term Insurance

A life policy that pays out upon the death of the life assured.

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Unsecured Debt

Money borrowed without giving any collateral.

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Value Chain

The sequence of business activities by which value is added to the products or services provided by the organisation.

Value Inspection

This is an inspection of a property before granting a mortgage.

Valuation

A brief inspection of a property for mortgage purposes.

Valuation Fee

The amount paid by a borrower to cover the costs of the valuation report.

Variable Rate

A rate of interest which may go increase or decrease during the life of the loan.

Variable Interest Rate

An interest rate that changes during the period of the loan, usually in relation to a standard index. The rate goes higher or lower based on market forces.

Verification of Deposit

This is part of the loan application process where a lender will ask a borrower's bank to sign a confirmation statement verifying the borrower's account balances.

Verification of Employment

This is part of the loan application process where a lender asks the borrower's employer for confirmation of the borrower's employment status and income.

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