Jargon Buster
If you've ever had difficulty understanding your bank manager or loan provider, don't worry; you're not alone. The financial services sector is packed with so much industry-specific jargon that you'd be forgiven for thinking it's an entirely new language. At First Aid Finance Ltd we believe in speaking plain English.
APR
The Annual Percentage Rate is arguably the most important factor to considering a secured loan. It allows you to compare the true cost of taking out a loan (including all fees and charges) over the period of one year. In 2004 the Office of Fair Trading (OFT) tightened lending regulations by stipulating that loan providers must advertise their ‘typical APR' and not just their most favourable rates. This was great news for First Aid Finance Ltd and the secured loan industry in general as it put all finance brokers on an even playing field.
Arrears
Arrears refer to money which is owed and not paid on time. Late repayments may incur penalties so it's essential to read all the loan agreement small print before signing.
CCJ
County Court Judgments are court orders made to reclaim outstanding debts. If paid within 30 days the CCJ won't be recorded. However, if the payment is not met it will be held by the Registry Trust for six years and will have an adverse effect on the debtor's credit rating (which means higher loan rates).
Consolidation loan
Consolidation loans are used to bring all your debts beneath one financial umbrella. A single policy is taken out to combine several smaller loans; making repayment easier to manage. Consolidation loans often reduce monthly payments by extending the lifespan of the loan (meaning a greater total payment).
CRA
Credit Reference Agencies enable lenders to share information in order to get a clearer idea of borrowers' financial histories. This includes data held on public record (such as the electoral register) and by credit agencies. To find out more about credit reference agencies visit www.experian.co.uk or www.equifax.co.uk.
Default Notice
In accordance with the Consumer Credit Act of 1974, creditors must issue a Default Notice (outlining details of the breach of agreement and how it must be remedied) before any further action can be taken.
Home equity loan
Secured loans come in all sorts of shapes and sizes; one of them is a home equity loan. With a home equity loan the total borrowed is based on the current value of the property less the remaining mortgage balance.
Regulated loan
Secured loans of less than £25,000 come with the legal requirement that lenders aren't allowed to contact prospective clients for seven days after they receive the loan agreement. This period of consideration is designed to give the customer time to carefully read and consider the loan. Only then will the client receive the signable documents; whereupon they have another seven days consideration. The Consumer Credit act stipulates that loans of more then £25,000 need not be regulated.
Any loan up to and including £25,000 is deemed regulated under the Consumer Credit Act. Once an offer has been made the loan provider or broker can only send the client the Advance Copy Credit Agreement; not the signable agreement. After eight days the signable documents can be released to the client. The loan provider must then wait a further eight days before contacting the customer. This period of consideration is designed to give the customer time to carefully read and consider the loan. Loans greater than £25,000 are not subject to CCA regulations.
Secured loan
Secured loans allow homeowners to offset borrowing risk against the value of their property. This means that homeowners with a poor credit history can still take out a personal loan. However, it also means that borrowers who continually default on repayments may be putting their property at risk.
Self Certification
Self cert loans are typically for anyone who is self-employed and can't prove their last three years income. Applicants will be asked to declare their income and may be asked for bank statements as proof. Because self cert loans represent a greater level of risk to the lender; borrowers can expect higher APRs.
Unsecured loan
An unsecured loan is one which is not ‘guaranteed' with property. Because this represents a greater ‘risk' to the lender they may ask for cosignatory. Interest rates also tend to be higher to compensate for the increased risk. If the borrower defaults on repayments the cosignatory will be held equally responsible.
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