Loan and financing glossary

Loan terminology can be confusing. That's why we've created this handy loans and finance glossary which explains loan and finance terms in plain English.

Term Meaning
Asset  Something you own, e.g. property, a vehicle or furniture
Bad debt A portion of a loan or bill that can't be repaid
Bank A business offering financial services such as deposit accounts, cheque and savings accounts, mortgages, loans and credit cards
Bank fee Payments made to the bank for looking after your account and processing the transactions you make
Buyer A person who purchases a product or service
Car loan A loan used to buy a car. It can be either secured or unsecured and usually has easy and flexible payment procedures
Credit The giving of money or goods of value by one party to another.  The funds provided may or may not be secured. Payment at a later date is a commitment between the parties.
Credit card A card issued by your bank that allows you to buy goods and services on credit. You will be charged interest on what you owe and a minimum monthly payment is required
Credit history A record of unpaid loans, bills etc that have resulted in legal action or bankruptcy
Contract A verbal or written agreement between two parties, which is enforceable by the law. A contract needs to be offered and accepted to be legally binding
Debt Money that you owe. This money might be owed to a person, several people, a bank or other business
Debt consolidation Combining all your debts into a single loan e.g. taking out one loan to cover your hire purchase, credit card, personal loan
Documentation fee A fee charged by the lender for organising all the paperwork needed to loan you money
Finance The management of money
Guarantor A person who agrees to pay your loan if you can't make the payments
Hire purchase A loan allowing you to buy goods, such as appliances, on credit. Interest is usually charged. You use the goods while you are paying for them and they belong to you once the final payment is made.
Interest A fee you pay for borrowing money i.e. lender charge interest on loans
Income The amount of money earned by people through wages, interest, rent and business profit
Interest rate A fee charged on the borrowed money over time. Interest rates can be fixed (i.e. they won't change for a certain period) or floating (i.e. they can go up or down)
Loan Money that has been lent for use over a set period of time. Interest is usually charged on the loan amount
Mortgage Money borrowed to buy real estate where the real estate being purchased is used as security over the loan i.e. the lender can sell the real estate if repayments aren't made. Interest is charged and repayments are set so the loan reduces over time (Table Mortgage). Or you pay interest only on the amount borrowed and nothing off the actual amount borrowed
Mortgage top-up A loan that is added to your existing mortgage for things that cost a lot of money, such as renovations
Overdraft A negative balance in a bank account caused when you spend more money than you have in your account. Interest might be charged on the amount you are overdrawn by
Personal loan A loan usually used for a new car, holiday or debt consolidation. It can be either secured or unsecured and usually has easy and flexible payment procedures
Prearranged overdraft An agreed amount your bank account can be in overdraft. Interest is usually charged on the amount you are overdrawn by
Principal The actual amount you have borrowed. Interest is charged on the principal
Secured loan A personal loan where something such as a house or car is used as security. The security reduces the lender's risk, as they can sell the house or car to get their money back. Secured loans usually have a lower interest rate than unsecured loans
Unsecured loan A loan that does not have security. As there is no security, the lender has taken a greater risk; unsecured loans usually have a high interest rate
Repayments Money paid by you to the person, bank or company you have borrowed money from. The payments usually include interest, are subject to a payment schedule (e.g. payments must be made every week, or every month) with a set date for the final payment
Risk Measures how likely it is you'll repay your loan. The higher the risk of non-repayment the higher the interest rate will be
Term The length of time you have the loan for i.e. 12 months, 24 months etc
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