Money and finance have a language of their own. To make things easier to find your way around, we’ve cleared things up with our Jargon Buster.
Annual Percentage Rate (APR)
This tells you the basic cost of a loan, taking into account the interest you pay. Keep in mind there may be extra costs that APR doesn’t include, such as administration and broker fees. You can use the APR of a loan to compare similar products taken out over a similar duration. It’s worth remembering that APR is calculated on a yearly basis. As short term loans are taken out over less than a year, the APR will be higher.
If you miss a payment for things like rent, council tax or loans, you will be behind, or ‘in arrears’.
You can only be in arrears for the money that you’ve missed a payment on, not for future payments. For example, next month’s loan payment won’t be counted as in arrears.
The amount you have in your bank account. A positive balance is the amount you have. A negative balance is amount you owe. When it comes to loans the balance is the outstanding amount. So a balance of £240 would mean you still have £240 to pay back. The balance on a Satsuma loan includes all interest as this is calculated upfront.
A budget is a plan that you can put together to help you balance how much money you have coming in each month and how much you are paying out. It will then show you what money you have left. It can help you understand how much spare cash you have available to spend or whether you are spending too much. You can budget on an individual basis to keep track of your personal finances or as a household.
We’ve got a handy tool you can use to keep track of what you’ve got coming in and what you’re spending. This will let you work out what spare cash you have left after getting paid and paying all your living costs. Ideally you don’t want to spend more than you’ve got coming in, that’s obvious. But it’s even better if you can have a bit of money left over at the end of the month.
Continuous Payment Authority (CPA)
“CPA” is the name for regular repayments from your bank account for your loan payments. You give permission for your loan company to collect your payments and this then applies to all your payments until the end of your loan. You can cancel this at any time if you need to. Just let the company you’ve borrowed from know.
This is when you agree on a contract basis to receive something of value and pay it back in the future. In the world of loans, you are agreeing to receive an amount of money and repay that money plus interest by a certain date, either in one lump sum or a number of instalments.
A credit check is typically completed by a company every time you apply for credit, whether that is a credit card, loan, mortgage or even a mobile phone contract.
Companies use the information you provide to look up your credit record, which shows information about your past financial behaviour such as your payment history on other credit and how much credit you currently have. They use this to help them make an informed decision about whether they should lend to you. It’s worth bearing in mind that your record can vary depending on the credit bureau the lender chooses to use to compete their check.
Credit reference agency
These are organisations that hold information such as loan applications, bank accounts and your financial behaviour. This information then helps the lenders decide whether or not to lend to you and on what terms. Examples of agencies are Experian and Call Credit.
The information stored about you with a credit reference agency. It’ll have things like your electoral roll status, address, credit history in the last six years and a record of the credit checks you’ve had in the past. You have a right to see your credit report and correct anything that you can prove is wrong.
Your credit score is used by lenders to help them to decide if you can get a loan, credit card, mortgage or other financial service.
Your credit score is calculated using the information already in your credit report, together with any extra information you've given. From this, a score is calculated which represents your credit history. Lenders use this to tell them what kind of borrower you are and whether it's likely you'll make repayments.
You can find out more about how to improve your credit score here.
This is the money you owe. For example with a Satsuma loan the debt is the money you have left to pay off.
If you miss a payment on a debt such as a loan you will be in arrears, which is sometimes called defaulting on the loan. Miss a number of repayments and you could be issued with a default notice. A note will then be added to your credit record if you don’t pay the missed payments in a specified time. This note could affect your ability to borrow from us or other lenders in the future.
This is where you repay your loan earlier than you originally agreed to when you took out the loan. There are two types, a full early settlement where you repay all the money you owe before the final payment is due and a partial early settlement where you choose to repay some (but not all) of what you owe earlier, for example to try and pay off the final balance of the loan sooner. You have a legal right to settle early (in full or in part) but always check your paperwork as each lender will have their own early settlement processes.
Financial Conduct Authority (FCA)
The FCA are an independent public body funded entirely by the firms they regulate, by charging them fees. They are accountable to the Treasury, which is responsible for the UK’s financial system and to parliament.
The FCA objectives are to ensure that financial service markets work well. They:
- Protect consumers
- Protect financial markets
- Promote competition
Interest is the charge for borrowing. It can be added to the amount borrowed in different ways but generally for loans it’s either daily, where interest is calculated and charged on a daily basis on your loan, or fixed. Fixed interest is calculated upfront and the full amount is added to your loan.
The percentage that works out how much money is paid on a loan on top of the amount of money you have borrowed. It indicates the price at which you can borrow money. So borrowing a set amount of money at 22.5% for 18 months is going to cost you more than borrowing the same set amount of money for 18 months at 18% .
The amount you have agreed to pay to the lender to pay off a loan. When you take out a loan or credit card you will make regular repayments, for example on a weekly or monthly basis. It literally means to re-pay the money you borrowed.
Right of withdrawal
This refers to your right to withdraw from a credit agreement, which means you can change your mind and cancel the agreement. You typically have 14 days to change your mind and will be expected to repay the money you borrowed plus interest for each day you had the money in your account. It’s always worth checking the paperwork though, as the process for withdrawing from a credit agreement can vary from lender to lender.
A type of borrowing where the loan is secured against something you own. If you don’t make repayments the lender could sell the item your loan is secured against to get its money back. Loans can be secured against a number of things, but most commonly they are secured against your home.
The period of time your loan runs. For example, 12 months.
Total amount payable
As it says, this is the total amount you need to pay back. At Satsuma this will be the upfront cost of the amount you have borrowed plus the interest on top. You’ll receive this in your loan documents from us, before you take out your loan.
Total charge for credit
The amount you’re charged for in total for your borrowing. With a Satsuma loan this will only ever be made up of interest, but it’s worth remembering that other lenders may include additional charges. Before you take out your loan, we’ll detail the total charge for credit so you know the full cost of your loan, upfront.
These loans are not backed by property such as your home or car, so your property can’t be repossessed if you don’t make repayments. A lender will generally use your credit score as a guide for deciding on whether or not to let you borrow money.
Have we missed any? Let us know and we’ll be sure to add it. Comment below.
Representative example: £480 loan repayable over 9 months. 9 monthly repayments of £106.56. Rate of interest 133.1% p.a. fixed. Representative 535% APR. Total amount payable is £959.04