Loan Jargon Buster

APR- The Annual Percentage Rate is the annual rate that is charged for borrowing a certain amount of money. This percentage includes any fees or additional charges associated with processing the loan and is only used to compare secured borrowing.

Car Loan- This is a loan that is taken out specifically to pay for a car – and is paid back in monthly instalments, subject to an agreed interest rate.

Credit Rating- This is a term used as an evaluation of the credit worthiness of an individual, and an adverse credit rating would indicate that a borrower carries a higher credit risk. A high credit score is an indicator of good credit, whilst a low credit score is a sign of bad credit.

Credit Reference Agencies- This is an independent agency which keeps a record of individual’s credit history, so lenders can go to these organisations and retrieve credit information on borrowers applying for a loan with them.

Debt Consolidation- This entails consolidating (or bringing together) all of your existing debts into one larger loan, usually with a lower interest rate with the added convenience of only having to pay  off one loan.

Early Repayment Penalty- Some lenders may charge a fee if you make a repayment too early in your agreed loan term.

Loan Payment Deferment- Also known as a payment holiday, this is when the lender allows the borrower to have a short break (e.g. a month) before the repayments begin.

Payday Loan – This is a short-term loan, mostly over no more than a month, for loans ranging from £50-£1000. They are used to bridge the gap between paydays, usually with high interest rates.

Personal Loan- Also known as an unsecured loan, these are loans that are provided upon assessment of the individual’s credit rating and personal circumstances, usually with higher interest rates and shorter repayment terms.

Secured Loan- This is a loan which requires the borrower to provide an asset (usually your house) as security, meaning their home could be repossessed by the lender, should they default on their repayments.

Representative APR- This is the APR that at least 51% of borrowers will be offered when they take out a loan, but all offers will vary from borrower to borrower and from lender to lender. RAPR is used to compare unsecured borrowing.


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