Our glossary of loan terms ensures that you stay well informed through every step of taking out a loan. Stay in control with this comprehensive definition guide.

Loans glossary
We try not to bombard you with financial jargon but if you need help understanding what loan terms mean like acceptance rate, CCJ, secured loan and variable rate, then click on the links below.

Acceptance rate
This is the percentage of customers who are successful in their application for loan or credit card. 

Adjustable rate
Like variable rate, it’s an interest rate that can change in relation to an index.

Adverse credit rating
People who have a less-than-perfect record of repaying their credit commitments would be referred to as having an adverse credit rating – this means you would struggle to get credit.

APR (annual percentage rate)
The representative APR (formerly known as typical APR) is how much your borrowing will cost in interest over the period of an average year, over the term of your debt. It factors in the interest charged and any additional charges/fees. It is a legal requirement for APR to be shown on credit products to ensure comparisons between competitive products can be made. 118 118 Money currently offer an APR at 99.9%.

Arrangement fee
Some lenders charge an additional fee to set up a credit agreement and can often seem hidden from publicised rates. This is called an arrangement fee – and this is something we don’t do!

Arrears
Hopefully this wont ever be relevant to you! If you are in arrears it means that money you owe should have been paid back earlier, i.e. you have missed a scheduled repayment. 

Asset
This is something that the borrower owns that has value in order to be guaranteed against certain credit agreements. You need an asset for a secured loan, for example, your house would be considered an asset and a large loan could then be secured against the house, but you would be at risk of losing your asset if you did not keep up with the payments.

BACS payment
BACS is an electronic system to make payments directly from one bank account to another. They’re mainly used for direct debits and direct credits from organisations.

The payments take 3 working days to clear. CHAPS guarantee same-day payment so long as the instructions are received by a certain time on that working day. Customers are not charged for BACS payments but there is a cost for doing a CHAPS payment.

Balance
The balance is the amount of money owed on your account.

Balance transfer
A balance transfer is when you move balances from one credit or store card onto another. This could be in order to move your credit onto a better interest rates. Sometimes credit card companies offer enticing rates (i.e. 0% interest for six months) to encourage you to become a customer.

Banker’s draft
Getting a banker’s draft is like asking a bank to write a cheque for you. You give them your money, and they give you a cheque for that amount to give to the person owed. The good thing about banker’s drafts is that they do not bounce through lack of funds. You can find out more about different types of cheques by visiting https://www.moneyadviceservice.org.uk/en/articles/using-cheques-or-bankers-drafts

Borrower
Also referred to as loan applicant or customer – it is the person/s applying for a loan. 

Car finance (car loan)
This is a loan specifically for purchasing a car and many dealerships offer this type of loan. You can use a 118 118 Money loan for the purchase of a car, or you can use it for something else! 

CCJ (County Court Judgment)
A type of court order that may be registered against you if you fail to repay money you owe. It sets out how much is owed, how the money should be repaid and the payment deadline. You could be at risk of losing your assets if you do not stick to the agreed repayment plan. 

CHAPS
See BACS 

Consolidation loan
This is where applicants use one loan to pay off multiple debts into one simple payment. Ideally a consolidation loan is on a better interest rate with quicker repayment terms so you get rid of the debt quicker and save money. Alternatively it may be used to reduce how much you have to pay back debtors each month.

CPA (Continuous Payment Authority)
A CPA is agreed through the loan application process between the lender and the customer. It is a type of automatic payment that authorises a lender to withdraw sums from a borrower’s bank account using debit card details. CPAs can provide an efficient and convenient payment method for customers. You must ensure you are fully aware of the commitment you are entering into when applying for a loan with this set-up.

Credit
Credit is any arrangement where you buy goods or services now but you agree to pay later. Credit comes in many different shapes and sizes including mortgages, loans, overdrafts and credit cards. In most cases you’ll have to pay an agreed amount back every month with interest. Whatever credit you choose, it’s important to keep up with your monthly repayments.

Credit check
Most lenders will check an applicant’s credit report to establish the likelihood of them paying back the loan on time. Credit checks are recorded on credit reports and too many credit applications can have a negative effect on the credit score.

Credit reference agency
A credit reference agency is an organisation that collects stores and shares personal credit information with other lending and financial institutions. 

Credit repair
Improving a credit score by updating incomplete or incorrect entries on a credit report. 

Creditors
An organization or business that has leant money to someone and agreed repayment terms.

Credit score
Your credit score is one of the tools used by lenders to understand more about your credit history and to help them assess how much of a risk lending to you would be. One of the main tools used to calculate your credit score is your credit report (see below).

Credit report
A typical credit report holds financial information about you including a list of all your credit accounts, details of any person who is financially linked to you (joint credit for instance), public record information (such as County Court Judgments), and current account providers. Data is held for 6 years after they occur. Credit scores are based on credit reports so we recommend you check yours regularly to potentially correct inaccuracies and improve your score.

Debt management
A Debt Management Plan (DMP) is a repayment scheme offered by a debt management company. They will negotiate your repayments over a number of years to enable you to make payments to your creditors more affordable. This affects your credit rating but does help get hold of finances that have become uncontrollable.

Data Protection Act
A law designed to protect personal data stored by an organisation.

Debit card
Unlike a credit card, you are not borrowing money. The card takes money you already have directly from your bank account. 

Debt consolidation
See consolidation loans.

Direct debit mandate
The process of setting up a regular repayment via your bank so the lender or service provider receives payments automatically.

Default
Failing to meet the terms of the credit agreement such as not making the agreed payments on time. 

Doorstep loan
This involves local agents physically visiting you to lend money. Interest rates tend to be higher than other options. 

Extension
Increasing the amount of time you have to pay back a loan.

Fast loan
See cash advance. 

Feefo
An independent financial review website (www.feefo.com). Our customer service rating is currently 99%. Well done to our 118 team!

FISA
The Finance Industry Standards Association or FISA is an independent body whose role is to promote best practice within the finance industry. 

Fixed rate
Interest rate that stays the same for the term of the loan and does not change despite any changes to the Bank of England rate. 

Flexible rate
See variable rate

FCA
The FCA regulates the financial services industry in the UK. Their aim is to protect consumers, ensure the industry remains stable and promote healthy competition between financial services providers. Further details can be found on their website. www.fca.org.uk 

FSA
The FSA has now become two separate regulatory authorities: The Financial Conduct Authority can be found at www.fca.org.uk and the Prudential Regulation Authority at www.bankofengland.co.uk. 

Gross income
The applicant’s total income before taxes or expenses are deducted.

Guarantor
A guarantor is someone who steps in and makes a payment if the borrower can’t so that the account always stays up to date.
The guarantor needs to be aged between 18 and 75 with a good credit history.

IFA (Independent Financial Advisor)
An IFA provides financial advice. IFAs usually offer products such as pensions, insurances and mortgages.

Interest rate
How much money a customer has to pay back in addition the money borrowed.

IVA (individual voluntary arrangement)
An IVA is a legal procedure for people in financial difficulty who have unsecured debts. It is a form of insolvency so you must be unable to pay your debts to apply for an IVA. You need an Insolvency Practitioner (IP) to arrange an individual voluntary arrangement. 

Lender
Lender is an organization or business that provides finance options to those looking to borrow money.

Loan agreement
A contract agreed between an applicant borrower and a lender which regulates the mutual promises made by each party including when the borrow money will be repaid.

A loan agreement states the interest rate, the repayment period, the collateral (if any) and any special terms. 

Loan term
How long the loan will last for until it is repaid. 

Net income
Income minus tax and national insurance. Also see ‘gross income’.

Online loan
Any loan applied for over the internet can be called an online loan. The application and decision-making processes are usually simpler and quicker online with no need for face-to-face meetings. Online loan companies offer some of the best deals, as they don’t have expensive high street costs. 

Outgoings
Current financial commitments of the borrower. This could be other direct debits such as mortgage payments and insurances, along with regular ad hoc spend such as food and petrol.

Personal loan
Unsecured loans to private individuals for personal use such as the purchase of a car, holiday, wedding, debt consolidation or home improvements.

PRA (The Prudential Regulation Authority)
PRA is a part of the Bank of England and responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms. It sets standards and supervises financial institutions at the level of the individual firm. www.bankofengland.co.uk

Principal
The principal of a loan is the actual amount borrowed.

Privacy policy
A privacy policy is a statement or a legal document that discloses some or all of the ways a party gathers, uses, discloses, and manages a customer’s data. It fulfills a legal requirement to protect a customer or client’s privacy.
To view our privacy policy click here.

Repayment loan / repayment plan
Regular payments to the lender would pay back part of the money you borrowed and part of the interest incurred. 

Secured loan
A secured loan uses the borrower’s property as security. It is often the cheapest option if you are a homeowner looking to borrow a larger amount of money. Unlike unsecured personal loans, you risk losing your home if you miss payments on a secured loan. For further information visit http://www.moneysupermarket.com/c/unsecured-loans/secured-loans/guide/ 

Short-term loan
A short-term loan is generally considered to be a loan with a repayment plan under 1 year. So they are for relatively small amounts and over a short time period. Check the repayment terms and the charges if you go over that term.

Total amount repayable
This is the amount originally borrowed in addition to all the interest and fees charged over the full loan term, e.g. exactly what you end of paying back for borrowing the money. 

Unsecured loan
A credit agreement or loan that does not require the applicant to provide any form of security, guarantor or asset as part of the deal. Most personal loans are unsecured. See ‘personal loan’ and ‘secured loan’.

Variable rate
Common with mortgages. An interest rate on a loan that may change over time so a borrower’s repayment plan may go up or down. The benefit to a variable interest rate is that if the underlying interest rate declines, the borrower’s interest payments also reduce. Some good deals are possible but there is also the risk of monthly payments increasing. Choose what’s right for you.

Representative example: Amount of credit £1,810.48 for 24 months. Interest rate: 71.3% pa (fixed). 24 scheduled monthly payments of £143.48. Total amount repayable: £3443.52. Representative 99.9% APR.

Rates from 35.9% APR - 99.9% APR fixed.