Finance Glossary

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0 Percent APR Loan

A 0 percent APR loan is a loan that charges no interest, or Annual Percentage Rate (APR), on the amount borrowed.  It is useful to contrast a 0 percent APR loan to a fixed rate or variable rate loan that typically charges an interest rate on top of the amount borrowed. 
It is important to remember that lenders make profit by charging interest on a loan.  For this reason, lenders rarely offer full-term 0 Percent APR Loans – and if they do, there is likely to be a catch.  Some lenders, for instance, may offer an introductory 0 Percent APR period on a long term loan before charging at a fixed or variable rate, so you should research the complete loan package before taking out a particular loan.

Actuary

Actuaries are risk-assessment consultants to accounting and insurance companies and rely on probability and statistics to assess the financial impact of enforcing a given interest rate at a given time.  In simpler terms, they are typically concerned both with the stability of the financial market and the potential for lenders to make significant profit.
At any given time, an actuary will consider the general economic environment and relevant business practice when consulting to financial organisations.  It is then the actuary’s responsibility to explain possible routes towards limiting potential risks to the lending body.  For this reason, many actuaries will also study past case histories of similar financial trends in order to substantiate their specific forecasts.

Adjustable Rate Loan

An adjustable rate loan is a loan with an interest rate that changes throughout its term.  A lender will typically adjust the interest rate based on the outstanding balance and in accordance to the Bank of England’s rate.  An adjustable rate loan can also be referred to as a floating rate loan or a variable rate loan and is in contrast to a fixed rate loan – that is, a loan with an interest rate that remains fixed throughout its term. 
Borrowers who take out fixed rate loans can expect steady monthly repayments while borrowers who take out adjustable rate loans will make different monthly repayments throughout the term of the loan.  Adjustable rate loans are therefore usually considered to be a bit riskier for the borrower.  If the market is weak, however, the interest rate of an adjustable rate loan will be relatively low and can potentially decrease the amount of paid interest overall.  When shopping around for adjustable rate loans, you should consider how closely a lender’s interest rates tend to correspond with or hug the Bank of England’s base rate.

Administration Fee

An administration fee is a cost that some lenders may charge the borrower for filing an initial application for a loan.  Charging an administration fee for a loan application is becoming more popular among lenders and is now considered standard practice.  Nevertheless, borrowers should carefully consider such added costs when researching loans – less reputable lenders have been known to couch unforeseen expenses in hidden administration fees.   Administration fees can also be referred to as application fees, though administration fees can refer to other administrative charges to the borrower beyond submitting the initial application.

Adverse Credit

Adverse credit is poor credit rating and typically results from failure to repay loan or credit debt on time.  Only a credit check can determined whether or not someone has adverse credit, and lenders run credit checks in order to ensure that potential borrowers are likely to meet monthly loan repayments.  Those with adverse credit have in all likelihood accumulated negative items, or credit repayment offenses, such as arrears, CCJs, or bankruptcy. 
Though lenders still offer loans to borrowers with adverse credit, these adverse credit loans will carry high interest rates and should only be taken out if borrowers are certain that they can meet their monthly repayments.  Despite their high interest rates, adverse credit loans have their upsides: paying off an adverse credit loan on time and in full can help a borrower with adverse credit improve their credit rating and can in turn allow the borrower to take out a loan at a lower interest rate.

AEA

AEA stands for Annual Exempt Amount and is the yearly allowance that a UK resident can earn in capital gains without having to pay capital gains tax.  Capital gain is defined as the profit that an asset such as a property has grossed the owner since its having been originally purchased.   For the 2008/2009 fiscal year, the AEA has been set at £9,600 – that is, if your capital gains exceed this amount, you will be held accountable for capital gains tax.

Allowance

Allowance in the UK is the amount that a UK resident can earn before his or her income will be taxed by Inland Revenue.  Personal allowance amounts change with each fiscal year and are more amenable for senior citizens; for the 2008/2009 tax year, allowance is £6,035 for residents under 65, £9,030 for residents aged 65-74, and £9,180 for residents 75 and older.  The legally blind are also given a larger personal allowance (£1,800 plus their age-appropriate allowance).
If you have a larger allowance, this means you can earn more in income without its being taxed.  A 65 year old resident, for example, could earn up to £9,030 in income before they are taxed in the 2008/2009 fiscal year.  A 35 year old resident, however, will have his or her income taxed once they have earned £6,035.  UK residents should keep in mind that National Insurance payments will be docked out of their pay regardless of their personal allowance as this is considered separate from income tax.

Application Fee

An application fee is a cost that some lenders may charge the borrower for filing an initial application for a loan.  Charging an application fee for a loan application is becoming more popular among lenders and is now considered standard practice.  Nevertheless, borrowers should carefully consider such added costs when researching loans – less reputable lenders have been known to couch extra expenses in hidden application fees.   Application fees can also be referred to as an administration fees, though application fees more specifically refers to a fee associated with the initial application.

Applied or Nominal Interest Rate

An applied or nominal interest rate is the base rate at which a loan will gain interest.  It can also be referred to as the real interest rate or the actual rate because it reflects what the lender will actually charge in interest.  It is important not to confuse the Applied or Nominal Interest Rate with the Annual Percentage Rate (APR).  More often than not, the Applied or Nominal interest rate will be less than the APR because it does not take additional charges or inflation into account.  In other words, the APR offers a more accurate reading as to what a borrower’s total annual costs will be while the applied or nominal interest rate simply refers to the actual interest rate.

APR

APR stands for Annual Percentage Rate and is the lender’s estimate of the amount of interest that a loan will accrue annually – in other words, it is the annual percentage rate of interest on a loan.  For example, if a lender advertises a loan with an 8% APR, then a £1000 loan would cost the borrower £80 in interest payments in the first year. 
Lenders are required to disclose the APR of any loan product before a borrower is allowed to submit a loan application.  Borrowers should also be aware that the advertised APR may not end up being the rate at which their individual loans actually accrue interest; once the lender performs a credit check and verifies the borrower’s income, the actual APR may rise or fall accordingly.  With this in mind, the UK government requires by law that the advertised APR reflect the actual rate at which at least 66% of eventual borrowers are charged. 
It is important not to confuse the APR with the applied or nominal interest rate.  The APR accounts for the interest rate plus additional fees and inflation whereas the applied or nominal interest rate simply reflects the interest rate.  The APR is therefore a more accurate reading of the amount that borrower will pay the lender in the course of a year.

Bad Credit

If a credit report indicates that a borrower has bad credit, this means that he or she has a poor record of paying back loans and credit on time and in full.  In some cases, bad credit can also mean that the borrower has filed for bankruptcy or been issued a CCJ.  In either case, a bad credit rating can be a major liability in terms of securing future loans, and borrowers with bad credit ratings should expect to be burdened by especially high interest rates. 
Those afflicted with bad credit would be wise to try to improve their credit rating.  This can be done by securing a bad credit loan, also known as an adverse or poor credit loan.  Though these loans typically come with high interest rates, paying them off on time and in full can help to boost a bad credit rating.  Indeed, the only way to reverse bad credit is to build up a strong and reliable track record of repaying debt.

Bad Credit Loans

Bad credit loans are designed specifically with borrowers who have poor credit ratings in mind.  Though they can usually be arranged for large and small amounts, bad credit loans nearly unanimously have high interest rates.  This is in order to offset the risk that the lender takes on by lending money to a borrower with a poor history of paying back credit.
Despite their relatively high interest rates, bad credit loans can help those with bad credit to improve their credit ratings.  By paying off your bad credit loan on time and in full, you can turn a bad credit rating into a good one.  Some lenders even offer repayment plans whereby borrowers with bad credit can switch to lower interest repayment plans once they have improved their credit history.

Balance Sheet

Maintaining a balance sheet is an essential way for any business to accurately assess its overall earnings.  In essence, a balance sheet summarizes the ability of a company to make or lose profit.  In order to record this, the company reports its annual assets, liabilities, and overall equity all in one financial statement.  If the assets are greater than the liabilities, or overall expenses, then the company is said to have positive equity and to have made profit.  But if the overall assets are less than the liabilities, then the company is said to have negative equity and to have lost profit.

Banker’s Draft

Requesting a banker’s draft is a safer and more reliable alternative to writing out a personal cheque.  When you write a personal cheque, the money being transferred is typically drawn out from your personal bank account.  When you obtain a banker’s draft, however, the funds are transferred directly from the bank’s funds to the creditor’s account.  This means that there is no risk that the draft will bounce, and the draft will generally ‘clear’ into the recipient’s account immediately and without incident. 
Obtaining a banker’s draft is fairly straightforward.  If you have an account with the participating bank, the appropriate funds will be transferred from your account to the bank’s overall funds in the amount that you request.  If you don’t have a current account, you can still get a banker’s draft by paying the bank directly in cash.  Those who have declared bankruptcy or do not have access to a current account might find banker’s drafts a useful alternative to personal cheques.

Bankruptcy

An individual is considered bankrupt once he or she has been excused from paying outstanding debts by the court system.  In order to file for bankruptcy, you have to prove that you have accumulated debts in amounts that clearly exceed your ability to pay them back. 
Far from being a free pass, filing for bankruptcy can have dire consequences on your ability to borrow credit or have a current account in the future.  Though you will be given a living allowance for 12 months after bankruptcy, you will be prohibited from opening up a current account and will have to receive permission from the court before you apply for a loan in excess of £250. 
In the UK, bankruptcy typically refers to individuals and couples.  If a company or organisation can no longer contribute to outstanding debts, they are said to claim liquidation instead.  Both bankruptcy and liquidation can also be referred to as forms of insolvency.  Indeed, the Insolvency Act of 1986 outlines the legal protocol for both individuals and companies filing insolvency.

Base Rate

The base rate in the UK is set by the Bank of England and reflects the lowest possible interest rate at which UK lenders can offer their loan products.  The Bank of England’s Monetary Committee regulates the base rate so as to encourage consumer spending in order to keep inflation low.  All lenders are therefore required to adhere to the current base rate in order to promote a stable economy. 
Lenders by and large offer interest rates on their loan products that are higher than the BoE’s current base rate.  Variable rates typically respond to rises and falls in the standardized base rate, and some lenders offer interest rate plans that explicitly track the changes in the base rate.  These base rate tracker loans will charge interest in direct relation to the base rate, usually at a 1-2% increase.
Most recently, the base rate has taken a dive in response to the credit crisis.  The Bank of England hopes that a lower base rate, and therefore lower paid interest, will translate into an increase in consumer confidence.  You should therefore consider the current economic climate if you are researching variable rate loans.  In particular, short term tracker loans can be costly if the Bank of England’s base rate is especially high.

Bridging Loan

A bridging or bridge loan is a short-term loan designed for borrowers who need a large amount of money in very little time.  As a result of the very high interest rates associated with bridging loans, borrowers should be certain that the short-term investment will yield profit immediately – lenders typically expect bridging loans to be repaid within 3 years. 
In addition to having high interest rates, bridging loans can be difficult to find.  Owing to the high risk of lending bridging loans, banks rarely offer such unsecured loans in the wake of the credit crunch.  More often than not, borrowers have to seek bridging loans from independent lenders and should therefore be prepared to seek independent financial advice before approving a plan.  On the upside, bridging loans can usually be arranged quickly and without hassle, allowing the borrower to bank in on last-minute investments without delay. 
Bridging loans are especially relevant to commercial property investments.  Many property buyers will take out bridging loans if they would like to put down an offer on a house and are confident that their own properties will be sold shortly thereafter.  The bridging loan can then be paid off immediately when the old property has been sold.  A common mistake among borrowers is to secure a bridging loan without being certain that the loan can be repaid quickly.  It is not enough for you to expect your property to sell – a deal should be in the works and next-to-certain.

Business Loan:

A new business owner might require a business loan in order to cover the cost of start-up fees and to build up his or her client base.  Yet these same borrowers often have not had the business long enough to have built up solid business credit.  Many business loans, particularly small business loans, therefore operate much like personal loans – that is, borrowers with good credit and reliable incomes will be offered better interest rates by potential lenders.
Mixing business loans with personal credit, however, can be risky business, especially when you consider the fact that many new business owners won’t see profit for at least a few years.  For this reason, it could be advantageous for a business owner to build up his or her business credit before taking out heftier business loans. 
Like personal loans, business loans can be secured or unsecured and can offer high or low interest rates.  One of the most important factors that lenders consider is the ability of a business to meet expenses and make profit, and this can be measured in the form of business credit.  To that end, new business owners might consider opening up a business credit card account and paying off credit payments in full and on time.  This is typically seen as a good way to start building up good business credit.
Business loans are not just useful for new business owners.  Many business owners looking to expand an already successful business might take out a business loan.  These loans can have the added bonus of carrying relatively low interest rates, especially if the business as a whole has built up good business credit.

Cancellation Period:

Once a borrower has been approved for a loan, he or she has until the end of the cancellation period to refuse the loan, even after having signed a loan agreement.  The cancellation period was introduced by the Consumer Credit Act of 1974 in order to safeguard the borrower from misinformation and hidden fees.
Under the Consumer Credit Act of 1974, a borrower can only cancel a loan agreement if he or she signed the loan contract face to face with the lender and away from the lender’s office.  In other words, if you signed the loan deal in your own home, you will usually be able to cancel the agreement during the cancellation period. 
Cancellation or cooling off periods tend to be very short and begin the minute that a loan agreement has been made.  As a general rule, borrowers should not agree to loan deals even if they plan on taking advantage of the cancellation period.  Cancellation periods were introduced in order to prevent lenders from preying on naive borrowers and not to give the borrower more time to shop for other loans.  Lenders are required to send borrowers proper notification of the cancellation period, which typically lasts until 5 days after the second notification has been dispatched to the borrower.

Capital:

In its broadest sense, capital simply means a sum of money.  In terms of loans, however, capital specifically refers to the total amount of money that a borrower owes to the lender – that is, the amount borrowed plus the accumulated interest.  This is particularly relevant to borrowers who have taken out mortgages – mortgage owners repay capital in-full at the end of the mortgage term.
Loan capital should not be confused with business capital, which is the amount of money that a business currently has at its disposal for daily expenses.  Business capital typically does not include money that has been borrowed in business loans.  New businesses may, however, use business loans in the place of business capital.  In other words, a new business owner can meet initial business capital, or business costs, by taking out a business loan.  Over the course of its first few years, a business owner will hope to generate enough profit to cover business capital without the help of loans.

Capital Gains Tax:

If an asset is sold at a higher price than its original cost, then the profit gained will be susceptible to a capital gains tax.  Assets typically associated with incurring a capital gains tax include shares, bonds, and property.  This is because these assets are among the most profitable for individuals
The amount that an asset can earn its owner before it is taxed is referred to as the Annual Exempt Amoung (AEA) and is changed annually.  For the 2008/2009 fiscal year, the AEA has been set at £9,600 – that is, if your capital gains exceed £9,600, you will be held accountable for capital gains tax.   
Capital gains tax is typically more favourable than income tax and is charged at a higher rate than capital gains tax.  Nevertheless, property owners and businesses in particular will sometimes attempt to avoid paying a hefty capital gains tax by transferring assets or offsetting capital gains with capital losses.

Car Loan:

A car loan is a loan that can be used towards the purchase of a car.  Like all loans, car loans should be well-researched before they are secured.  Since you will be borrowing a large amount of money in a short amount of time, you may be held to higher interest rates and a shorter repayment term.  Nevertheless, car loans can be a great way to foot the initial costs of a car, especially if you have stumbled upon a great deal or if your old car is beyond repairs.  Borrowers with good credit ratings will be more likely to take out unsecured car loans at reasonable interest rates.  This means that the borrower will not have to offer collateral in exchange for the ability to purchase a car.

Cash Flow Financing:

Cash flow financing is a short-term loan that a company might take out if they are experiencing or anticipating a rough patch and are at risk of coming up short in expected sales.  As a result of the high interest rates typically associated with cash flow financing, many companies will only take out cash flow loans if they also anticipate an overall increase in revenue once the loan has been used.
It is helpful to think of cash flow financing as a temporary cure-all to a fiscal flu.  In other words, cash flow financing can help a business survive unexpected dips in the market or poor quarterly sales.  Again, it should be stressed that companies should only turn to cash flow financing if a rise in profit has been forecasted in the aftermath of the fall in profit.

Cash Loan:

A cash loan is a general term for an unsecured, fixed rate loan for borrowers who need money in a pinch.  The amount covered by the loan can be big or small and distributed in instalments or in a lump sum.  Instant cash loans, for instance, tend to be smaller sums disbursed to the borrower in a lump sum and in cold cash.  Other cash loans can cover larger amounts and be made directly into the borrower’s current account. 
Borrowers might require instant cash loans for emergency situations or when credit card payments are prohibited.  The lender assumes high risk by lending unsecured cash directly to the borrower, and for this reason cash loans are typically short-term and high interest.  When a lot of cash is needed in little time, however, many people find cash loans to be the best available option – they are generally easy to get.  
If you need a larger loan than most lenders are willing to provide in instant cash loans, you should consider applying for secured loans.  These are loans that require collateral, such as home equity release plans or taking out a second mortgage.  By offering collateral, the borrower offsets the high risk of the loan taken on by the lender.  In other words, the lender will be less hesitant to lend more money and might also offer more affordable interest rates to the borrower.

CCJ:

CCJ stands for County Court Judgment and can be issued by County Courts in order to penalize non-payment of an outstanding loan or debt.  Having a CCJ is considered one of many arrears that can result in a bad credit rating and can therefore affect your ability to secure credit in the future. 
In some cases, CCJs are administered by county courts in order to elicit immediate repayments and can therefore be issued to reclaim both large and small amounts of debt.  If a borrower is handed down a CCJ, he or she has 30 days to repay the outstanding debt before the CCJ will show up on a credit rating for the next 7 years.  A CCJ can therefore be used by lenders to demand debt repayment by borrowers who refuse responsibility for the loan.  Those who ignore a CCJ risk not being able to secure loans or mortgages, meaning that they will be mired in bad credit without being able to improve their credit by taking out bad credit loans.

Child Tax Credit:

A child tax credit is available to families with children and an income of less than £58,000.  This is to offset the expenses typically associated with raising children; those with disabled children are paid more in credit.  Families can claim child tax credit whether or not both parents are employed.  Depending on the total income earned, families are given the credit in a lump sum or base on the number of children in the family.  Those paid per child can be given up to £1845 in child tax credit each year.

Closing Costs:

In addition to paying the principal of the mortgage and the amount of interest accumulated by the principal, borrowers are also responsible for covering closing costs when they close a mortgage.  Closing costs typically include lawyer fees, home warranties, title insurance, and other administrative costs and are convened once the property contract has been completed – also known as “closing” or settling the mortgage. 
It is important to keep closing costs in mind when you consider the overall cost of a mortgage, and you should be careful to budget appropriately.  Closing costs are to-be-expected, but don’t hesitate to contact an independent financial advisor if you’d like some clarity on what your particular closing costs actually cover.

Collateral:

If you give collateral to a lender, this means that you have pledged the value of an asset to the lender in exchange for a secured loan.  Another way of saying this is that you offer collateral in order to offset the risk that the lender takes on by lending you a large amount of money.  Just because you’ve put down collateral, however, doesn’t mean that you should be anything less than dutiful about loan repayments.  If you fail to pay back the loan, the lender has the right to claim ownership to the asset-in-question. 
That being said, collateral is required only by secured loans and can be a great way to ensure lower interest rates if you have bad or no credit rating.  Unsecured loans, on the other hand, do not require collateral and typically come with high interest rates.  This is because unsecured loans are not secured by the value of an asset, meaning the lender assumes a comparatively high level of risk.

Construction Loan:

Construction loans are loans that can be used towards the construction of a house or property.  They are especially attractive to potential borrowers because the loan amount is not repaid until the construction has been completed – that is, only monthly interest payments need to be made in the interim.  This results in relatively low monthly payments and allows the borrower to repay the loan with the capital gained from the property sale. 
In the UK, construction loans for individuals interested in building their own homes are more often referred to as self-build mortgages.  The term ‘construction loan’, on the other hand, is more appropriate when talking about developers or construction companies.  Though construction loans are high interest, lenders are more likely to recoup their loans in full and on time from reliable development companies than they are from individual developers.

Cooling Off Period:

During the cooling off period, a customer who previously agreed to a loan or credit agreement has the right to renege without penalty.  Sometimes this is referred to as the cancellation period, although the cooling off period more generally to applies to broader investment and insurance deals as well.
Different legislation regulates different cooling off periods.  According to the Consumer Credit Act of 1995, borrowers have within 10 days of a credit or loan agreement to reconsider.  Other 14-day cooling off periods are required in the case of investment or insurance agreements.  Lenders are generally allowed to permit cooling off periods that exceed the required lengths. 
It is in your best interest to be aware of the legal requirements that a lender must adhere to when determining the length of a cooling off period.  If you find a better deal before the cooling off period ends, it is within your right to cancel the original agreement and to switch lenders.

Covenant:

In order to take out a loan, borrowers must agree to a series of covenants outlined by the lender in the loan agreement.  The most common covenants are conditions which ensure a smooth, constant, and efficient cash flow between the borrower and the lender – in other words, covenants are promises that the borrower makes to the lender so that payments are made regularly and in full. 
Examples of common loan covenants include full disclosure, maintenance of assets, and payment of fees.  Covenants can also prohibit borrowers from taking certain actions during the term of their loan such as incurring more debt.  If you violate a covenant, you can risk defaulting your loan.  Not only will this result in a bad credit rating – in the case of a secured loan, the borrower can legally take ownership of the collateral.

Credit Card:

A credit card is a useful way to borrow money for up to one month without having to pay interest.  If you have a credit card, this typically means that you have a line of credit from the card issuer and can spend a certain amount in credit each month – this amount is referred to as your credit limit.  At the end of each month, credit card users will be issued a bill and asked to pay at least a minimum amount of the credit balance.  Though you don’t have to pay the total balance, you will be charged a late payment penalty fee if you fail to pay the minimum amount.
 If you choose not to pay the total balance at the end of a month, this doesn’t mean that you won’t be held accountable for borrowed credit.  On the contrary, any credit balance carried from month to month will incur a monthly interest fee.  When shopping around for credit cards, you’ll see that this fee is reflected in a percentage called Annual Percentage Rate (APR). 
You will pay less interest overall if you pay on time and try your best to meet each monthly payment.  More often than not, people with bad credit have allowed their credit card spending to exceed their monthly spending budgets, thereby letting their credit balance snowball in relation to earned interest.

Credit Card Limit:

When you apply for a credit card, your credit lender will assign you a credit card limit.  This is the maximum amount of credit or money that you can borrow using your credit card at any time.  If your credit limit is for £1000, you can only borrow up to £1000 on your line of credit.  But if you already have an outstanding balance of £200, you will only be able to spend £800 in credit until you pay your next monthly balance.
There is usually no need to ask for a credit limit that exceeds your monthly spending budget.  In fact, it is advisable to pay the complete balance every month – this prevents the balance from piling on interest.  If you would like to extend your credit card limit, however, you can typically do so simply by asking your credit lender and proving that you earn a reliable and steady income.  Credit lenders will also look at your credit history to make sure that you have met payments before they increase your credit limit.

Credit History:

A credit history is a borrower’s track record of repaying debt.  If you have ever borrowed credit, either in the form of a loan or a credit card, you will typically have a credit history.  Depending on your ability to pay back your debt on time and in-full, your will have either a good or bad credit history – and both will have a significant impact on your ability to borrow in the future. 
Of course, it is far better to have a good credit history.  If a borrower has a good credit history, this means that he or she will be more likely to be approved for low interest rate loans.  This is because the lender takes on less risk knowing that the borrower has a good record of paying back debt.  On the other hand, it can be very difficult for a potential borrower with a bad credit history to find a loan with an affordable interest rate.  Lenders are not eager to lend money to borrowers who have not paid back debt in the past. 
A credit history therefore provides a snapshot into a potential borrower’s ability to meet repayments.  It is often the only barometer by which lenders can assess a borrower’s potential risk.

Credit Report:

Lenders will perform credit checks on potential borrowers in order to assess their credit history, and these details are typically then outlined on a credit report.  During a credit check, lenders will look at your credit record and examine information from courts and other lenders in order to determine whether or not you have successfully repaid debt in the past.    A credit report that illustrates a bad credit history will make it more difficult to apply for loans in the future, while a credit report that reflects good credit history can make it easier to secure loans with low interest rates.

Crisis Loan:

Crisis loans are available only to those who need help in the case of an emergency or a disaster.  Crisis loans are paid for with social funds and are therefore interest-free – only the original loan amount needs to be repaid.  Some borrowers apply for crisis loans if they have lost all of their money due to an unforeseen circumstance or if there is serious risk to one’s health or safety without the loan.  Those who have already borrowed a substantial amount of money from social funds, however, may find it more difficult to obtain a crisis loan.

CTC:

CTC stands for Child Tax Credit and is available to families with children and an income of less than £58,000.  This is to offset the expenses typically associated with raising children, and those with disabled children are paid more in credit.  Families can claim child tax credit whether or not both parents are employed.  Depending on the total income earned, families are given the credit in a lump sum or based on the number of children in the family.  Those paid per child can be given up to £1845 in child tax credit each year.

Debt:

Debt is the amount of money a borrower has borrowed from – and will eventually owe – a financial institution.  When debt refers specifically to money, it typically comes in the form of credit or loans. 
More often than not, debt is repaid in monthly instalments so that paying off a large debt is more manageable for the borrower.  It is also likely that monetary debt will accumulate interest over a period of time.  In order to make a profit, lenders will charge a percentage of the loaned amount in interest each month.  In general, the quicker that a debt is repaid the less interest it will accrue, though some lenders will hold borrowers to an early repayment penalty if they repay the debt in full before the end of the loan’s term.

Debt Consolidation Loan:

A debt consolidation loan is designed to make it easier for borrowers to stay on top of loan repayment if they have more than one loan out at a given time.  It is especially unique because, instead of having to repay several loans at once, the borrower will only need to repay the debt consolidation loan. 
In order for this to work, the borrower must take out a debt consolidation loan in the amount totalling all of their outstanding loans.  These loans are then paid off immediately by the debt consolidation loan, turning a pile of monthly loan statements into a singular monthly debt consolidation payment.  Many borrowers find that this simplifies loan repayment, allowing them to stay on top of their budgets and to ensure that they don’t default on a particular loan.  Sometimes, debt consolidation loans can also offer a better overall interest rate in comparison to the average of the individual interest rates of their outstanding loans.

Debt Management Plan:

If a borrower has a difficult time paying back their many outstanding loans, he or she may consider setting up a debt management plan.  These are typically coordinated by debt advice agencies and are designed to reduce monthly repayments.  More often than not, the borrower will contact or hire a debt advice agency who will then contact the borrower’s creditors in order to negotiate reduced repayments. 
Charity debt agencies such as the Citizen’s Advice Bureau and National Debtline are held in high esteem by creditors, but they are also in high demand.  Hiring a fee-based debt advice agency is also an option, though borrowers should keep in mind that the cost of the agency should be less than the savings they expect to make by reducing their monthly loan repayments.

Debt Service:

A debt service is very simply the amount of money required over a period of time to repay debt.  Lenders will typically set up a debt service timetable outlining the amount owed at each payment and the number of monthly payments of the loan’s term.  The debt service will account for both the initial loan amount and the interest accrued by the loan.  Staying on top of your debt service is an essential way to keep up with payments and to manage your finances.

Debt Service Reserve:

In order to meet your monthly debt service, you might find it useful to set aside a debt service reserve so as to ensure that you meet the minimum monthly payment.  Debt service reserve funds can be especially helpful if the borrower experiences unforeseen economic hardship; having the minimum payments already saved up and ready to be paid means no costly penalty charges down the road.  Many find it easy to set up automatic payments into a debt service reserve account.   A healthy debt service reserve will also anticipate the interest that the principal accrues as the loan matures.

Debt-to-income Ratio:

The debt-to-income ratio is a percentage of a borrower’s monthly income that he or she can afford to make in monthly loan repayments.  Setting up a debt-to-income ratio analysis can help a borrower to budget for several loan repayments at once.  The lower the debt-to-income ratio, the more money you will have for day-to-day spending.  A debt-to-income ratio nearing 50%, however, is dangerous territory and can eventually lead to insolvency. 
Many lenders offer reasonable debt-to-income ratio repayment plans in order to tailor loan repayment to individual borrower’s finances.

Default:

To default on a loan or mortgage payment is to fail to make loan payments on time or to meet minimum monthly payments.  When you sign on to a loan agreement, you promise to adhere to a set of covenants.  Breaking one or several covenants means that you have defaulted on your loan and run the risk of being taken to court by your lender.  Whether or not a borrower is pursued for a CCJ, defaulting on a loan will invariably result in a poor credit rating, which will in turn make it difficult to take out loans in the future.
If you are worried about defaulting on a loan or mortgage payment, you might be interested in setting up a debt service reserve fund.  By saving directly into these funds, you can ensure that you will make the minimum monthly payment even during times of economic hardship.  Not only will you be free from the risk of defaulting – you also won’t have to worry about incurring any penalty charges.

Delinquent:

A delinquent is an overdue loan repayment.  This amount will continue to be called a delinquent until it is repaid in full, and delinquents left to fester can result in the loan defaulting.  Delinquents almost always carry a penalty charge as well and can generally be avoided by paying at least the minimum monthly balance. 
Delinquent can also be used to refer to the person who incurs monetary delinquents – that is, to the person who fails to pay their loan or mortgage.  In the case of a secured loan, the delinquent can risk losing his or her collateral.  More specifically, delinquents run the risk of losing their property by defaulting on a mortgage.

Discount Loan:

Discount loans, like discount mortgages, are offered by lenders in order to attract potential borrowers.  In short, lenders will offer interest rates lower than their standard variable rate for the first few years of repayment.  Once the discount period ends, the loans will charge interest at the lender’s standard variable rate.  A discount loan can help to ease the borrower into loan repayments.  They can also be a great way to save up enough money to afford higher interest rate payments. 
Sometimes a discount loan can also refer to a short-term loan from which the interest and financing charges are deducted once the loan is issued.  Say that a discount loan is issued for £10,000 and the total interest paid over the term of the loan would normally be £2,000.  The lender would therefore give you a loan for £8,000, though you would still have to pay the original £10,000 once the term has ended.

Due Diligence:

In order to ensure that a borrower will be able to repay a loan, a lender might investigate the claims that a borrower makes with regards to his or her finances.  This process is called due diligence, particularly when it is conducted between businesses.  During due diligence, an investor will typically look at a potential borrower’s tax history, income sources, and assets.  The investigation can be intense and time consuming, but serves the purpose of lessening the overall risk that the lender takes on by substantiating the viability of the borrower.

E Loan:

An E loan is an electronic loan application and is considered a convenient alternative to going to a lender’s office; borrowers can simply apply online.  This makes applying for a loan both quick and less stressful.  It can also allow the borrower to read the loan terms and conditions more carefully and is generally regarded as a key step in ensuring greater transparency between borrower and lender.

Early Redemption Charge:

A lender will usually enforce an early redemption charge if a borrower pays back all or a considerable amount of his or her mortgage before the end of a predetermined term.  Early redemption charge periods will differ from mortgage to mortgage and tend to be more common among fixed and discount mortgages.  An early redemption charge can also be referred to as an early repayment penalty. 
Many borrowers are surprised to learn that there is a penalty for paying back your mortgage early and in a lump sum.  Remember that lenders earn a profit on a loan by charging interest on the loan amount, so if you pay back your mortgage early, the lender can no longer rely on the interest you would have owed in the following monthly payments of the term.  By charging an early redemption charge, lenders ensure that they will still make a profit if the borrower chooses to pay off a mortgage earlier than originally forecasted.
That being said, if the early redemption charge is less than the savings you’d make by paying less in overall interest, then it still may be worthwhile to pay off your mortgage before the early redemption charge period ends.  It’s in your best interest to carefully consider early redemption charges when researching mortgages.

Early Repayment Penalty:

A lender will usually enforce an early repayment penalty if a borrower pays back all or a considerable amount of his or her mortgage before the end of a predetermined term.  Early repayment penalty periods will differ from mortgage to mortgage and tend to be more common among fixed and discount mortgages.  An early repayment penalty can also be referred to as an early redemption charge.
Many borrowers are surprised to learn that there is a penalty for paying back your mortgage early and in a lump sum.  Remember that lenders earn a profit on a loan by charging interest on the loan amount, so if you pay back your mortgage early, the lender can no longer rely on the interest you would have owed in the following monthly payments of the term.  By charging an early repayment penalty, lenders ensure that they will still make a profit if the borrower chooses to pay off a mortgage earlier than originally forecasted.
That being said, if the early repayment penalty is less than the savings you’d make by paying less in overall interest, than it still may be worthwhile to pay off your mortgage before the early redemption charge period ends.  It’s in your best interest to carefully consider early repayment penalties when researching mortgages.

Equity:

When you begin to pay off your mortgage, you will slowly start to build up equity.  Equity is the difference between the current value of an asset and the amount that is still left to be paid off in loans towards the ownership of the asset.  In simpler terms, equity is the total worth of an asset offset by the outstanding loans acquired to purchase the asset. 
Say, for instance, that you took out a mortgage for £100,000 to buy a home.  At any given time, your home equity will be the difference between the current market value of the home and the amount you have left to pay on the mortgage.  If the house is currently valued at £120,000, and £80,000 is left to pay on your mortgage (including payments towards interest), then you will have £40,000 in home equity.  As you pay off your mortgage, your equity should typically increase at a faster rate, especially if home market values are on the rise.
Having equity can be important leverage for acquiring new loans.  Equity loans in particular make use of the borrower’s equity; a borrower can receive quick cash for a lender by releasing his or her equity to the lender.  In exchange, the lender will become a partial owner of the property and will be able to reap a profit once the property has been sold.

Equity participation:

Lenders will be more likely to lend to a borrowers if they are offered something in the way of equity participation.  In other words, the borrower will offer the lender a share in his or her equity in order to secure a loan.  By doing so, the borrower helps to lessen the potential risk for the lender, and in some cases, brokering an equity participation agreement can be extra incentive for a lender to offer more affordable loans to the borrower.  This is because a borrower’s equity typically increases with time, so the lender will generally yield increased profit as the asset grows. 
Equity participation usually refers to loan transactions between businesses and lenders.  If a lender is assured that your business has good potential for growth, then you will be more likely to be offered a loan with affordable interest rates.  One a smaller scale, equity loans for real estate can also be seen as equity participation loans between the homeowner and the lender.

First Mortgage:

A first mortgage is a borrower’s primary mortgage.  At any given time, a borrower with more than one outstanding mortgage will have a first mortgage, and this is usually the mortgage that was first taken out on the property.  In either case, a first mortgage is given priority to all other mortgages.  If a mortgage other than the first or primary mortgages defaults, then the first mortgage must be repaid first.  If a borrower defaults on a second mortgage or home equity loan, for instance, than the lender might force a foreclosure on the property by buying the first mortgage.

Fixed rate:

A fixed rate loan offers borrowers a fixed interest rate over a predetermined period at the start of the loan.  These introductory periods typically range from 1-5 years, after which the interest rate will revert to the lender’s standard variable rate.  Fixed rate loans pose a lower risk to borrowers than variable rate loans because, once fixed, the rate is no longer susceptible to rises and falls in the Bank of England’s base rate.  In return for this security, fixed rates are likely to be higher overall. 
 In order to make sure that lenders make a profit, fixed rate loans will typically have an early repayment penalty.  That is, if the borrower pays off the loan in a lump sum before the end of the term, then lender will charge the borrower a certain amount.  This is to offset the losses in profit that might result from missing out on several months or years worth of interest payments.

Flexible Loan:

A flexible loan is a good option for borrowers with an unreliable income or generally unsteady personal finances and is frequently taken advantage of by self-employed borrowers. If you take out a flexible loan, and earn less than expected one month, then you can decrease your flexible loan repayment.  If you earn more than expected, then you can pay more than usual.  Flexible loans even come without an early repayment penalty or fixed term, so this means that you can pay off your loan in full as soon or as late as you’d like.  In essence, a flexible loan operates much like a credit card, and your interest will be assessed daily.   
The downside to flexible loans is that they tend to come with high interest rates – this is to lessen the risk assumed by the lender by permitting unsteady monthly payments.  Lenders also tend to be more careful about the amount covered by a flexible loan and will typically assess your income and credit score in order to determine how much should be lent.  For those with think that they may be able to pay off a loan earlier than expected, however, taking out a flexible loan could still be a more affordable option than a fixed term personal loan.

Fund Balance:

A business will calculate their fund balance by subtracting their total liabilities from their total assets in order to determine their net worth.  A healthy fund balance means more affordable business loans because the lender will have more confidence in the business’s general viability.  Over time, a business will hope to increase their fund balance, thereby allowing them to take out secure business loans and therefore to expand the size of their business.

Gross Income:

Your gross income is the amount of money you earn before taxes are taken out.  In order to qualify for a loan, lenders will look at your gross income to help determine whether or not you are likely to repay a loan.  Though loans are available to all types of borrowers, lenders will be more likely to offer higher amounts to those borrowers with a large gross income.  In addition to assessing your gross income, borrowers will also check your credit rating.  It is not enough to post a large gross income – it is also to your benefit to have a history of paying back your loans on time and in full.

Guarantor:

If a borrower defaults on a loan or refuses to make payments, then the guarantor assumes responsibility for repaying the loan.  Many lenders require that a loan agreement be signed by a guarantor as well as the borrower in order to ensure repayment.  This lessens the overall risk for the lender enough to warrant issuing the loan, providing that the borrower has a good credit check.  Having a guarantor, however, will not result in more affordable interest rates and will not serve to secure a secured loan – only putting down collateral can do this. 
If you are asked to be someone’s guarantor, you should consider the “what-ifs” very carefully.  Only pledge to be a guarantor if you have a strong sense of a borrower’s ability to meet loan repayments.  If the borrower is not a close personal friend or relative, and does not have a good credit history, then you may risk having to repay a loan you never benefitted from in the first place. 
In order to acquire business loans, it is common practice for the owner or director of a company to serve as a guarantor.  Large loans typically require co-guarantors, in which case both guarantors take on equal responsibility for repaying the loan if it is not repaid by the borrower.

Hire Purchase:

A hire purchase loan can be a good option for borrowers interested in acquiring an item quickly by paying comparatively little upfront.  If you hire purchase something, then you typically put down an initial deposit and make steady monthly payments thereafter.  Once you make the initial deposit, you can use the item at your leisure.  You will not assume complete ownership, however, until you have completed your hire purchase loan repayments in full.  A hire purchase loan is also commonly referred to as a Personal Contract Hire (PCH).
By far, hire purchase is most commonly offered by car dealerships in an effort to get potential customers to “buy now and pay later”.  Customers are especially keen to hire purchase if they are in desperate need of a vehicle or if the car of their dreams is offered at an exceptionally good price.   
If you are interested in hire purchasing, however, there are several things that you should keep in mind.  Higher purchase loans typically have higher interest rates than personal loans because you have the added benefit of acquiring the goods right away.  Furthermore, if you fail to make repayments, then the lender can legally repossess the item in question.  Taking out a hire purchase loan is rarely a good idea if you do not actually intend on paying the loan in full as well as taking complete ownership of the item at the end of the loan’s term.  Paying into a hire purchase loan is still paying towards an investment, so you’d be wise not to commit to a hire purchase loan simply so that you can have the item at your disposal right away.

Home Equity:

Home equity specifically refers to the current equity of a house or property.  Equity is the difference between the current value of an asset and the amount that is still left to be paid off in loans towards the ownership of the asset.  In simpler terms, equity is the total worth of an asset offset by the remaining balance of outstanding loans. 
Say, for instance, that you took out a mortgage for £100,000 to buy a home.  At any given time, your home equity will be the difference between the current market value of the home and the amount you have left to pay on the mortgage.  If the house is currently valued at £120,000, and £80,000 is left to pay on your mortgage (including payments towards interest), then you will have £40,000 in home equity.  As you pay off your mortgage, your equity should typically increase at a faster rate, especially if home market values are on the rise.
Home equity is particularly important with respect to taking out another mortgage on top of your first mortgage.  If you decide to take out another mortgage, you will typically offer your existing home equity as collateral for the new mortgage.  As a result, the lender assumes partial ownership of your property.  Be careful, therefore, not to default on your second mortgage.  Doing so could be as detrimental as defaulting on your first mortgage – the lender can use the home equity acquired through the first mortgage to purchase the first mortgage, and your house could then be forced into foreclosure.

Home Equity Loan:

Taking out a home equity loan can be a unique way to release the equity from your home.  When a borrower takes out a home equity loan, he or she offers their current home equity as collateral in order to secure a monetary loan.  A home equity loan is therefore a secured loan – the loan amount is secured by home equity.
Borrowers who take out a home equity loan should keep in mind that, if they default or refuse payment, the borrower can assume partial ownership of the property up to the amount of home equity offered as collateral.  In some cases, the lender may have enough home equity to purchase the first mortgage, and the home will be forced into foreclosure.  For this reason, home equity loans are often used to finance renovations or refurbishments, which will in turn increase the property’s value.

Home Income Plan:

Homeowners can opt for a home income plan if they would like to release some of their home equity in cash but would still like to live in the property.  Starting a home income plan is a unique way to receive a large amount of money in a lump sum or in monthly instalments, all from the home equity you have already accumulated.
There are two home income plans available to homeowners: reversion and annuity-based home income plans.  Under a reversion plan, homeowners sell their property in full to an insurance company and can then continue to live in the property while they receive monthly income payments from the insurance company.  An annuity plan, on the other hand, is akin to a re-mortgage, the monetary loan of which can be paid out in a lump sum or in monthly income payments. 
Home income and other equity release plans are especially popular among senior homeowners who have paid off most, if not all, of their entire mortgage.  By selling a portion of their home’s equity to a willing lender, the elderly can more fully reap the benefits of a paid mortgage during retirement.  Furthermore, senior homeowners can even request to apportion some of the remaining equity to relatives, meaning that they can invest in inheritance while still make the most of their paid mortgage during their final years. 
In exchange for releasing the borrower’s home equity, the lender is guaranteed a percentage of the house’s sale value at the time of the borrower’s death.  In the case of reversion plans, the insurance company will typically sell the property once the senior homeowner has died.

Inflation:

Inflation is the average rise in prices of goods and services in the economy over a certain period of time.   At any given time, the rate of inflation can be high or low, and this will generally reflect the state of the economy.  If the demand for goods is greater than suppliers’ abilities to supply them, then will be high – suppliers will increase their prices because there is competition.  If the demand for goods is less than suppliers’ abilities to supply them, then low inflation will result – suppliers will decrease their prices in order to encourage customers to buy their products. 
It is the hallmark of any healthy economy to keep the rate of inflation in check.  In the UK, the Bank of England will adjust its base rate in an effort to keep inflation low.  Low inflation typically means a more stable economy – consumers will not hesitate to spend – and a healthy national currency.

Inheritance Tax:

When a homeowner dies, the sale of his or her property will be charged inheritance tax.  For the 2008/2009 tax year, inheritance tax applies if the property of a deceased homeowner is sold for more than £312,000.  The difference between the sale price of the house and the inheritance tax benchmark will then be charged at a 40% rate.  Say, for instance, that you inherit a loved one’s house at the time of their death.  If you can sell the house for £372,000, then £60,000 will be charged at 40%, so you will be charged £24,000 in inheritance tax.  Inheritance tax also applies to any other gifts or assets left in inheritance seven years before the inheritor died.

Instant Cash Loan:

An instant cash loan is an unsecured, fixed rate loan for borrowers who need money in a pinch.  Instant cash loans can be issued immediately and therefore tend to be made for smaller sums.  They are typically disbursed in a lump sum and, by definition, offered in actual cash.  Other cash loans can cover larger amounts and be made directly into the borrower’s current account. 
Borrowers might require instant cash loans for emergency situations or when credit card payments are prohibited.  The lender assumes high risk by lending unsecured cash directly to the borrower, and for this reason cash loans are typically short-term and high interest.  When a lot of cash is needed in little time, however, many people find instant cash loans to be the best available option – they are generally easy to apply for and can be tendered in very little time.

Interest Only Loan:

An interest only loan offers borrowers an alternative to principal and interest repayment plans.  Instead of making payments toward the principal, borrowers are only required to make monthly payments toward the interest of the loan.  Such repayment plans typically result in lower monthly payments and alleviate short-term expenses, making interest only loans particularly useful for long term investments. 
Borrowers of interest only loans, however, should be aware of the long-term consequences of postponing repayment of the principal.  At the end of the mortgage’s term, the lender will expect the principal to be repaid in a one-off lump sum.  The borrower might therefore develop a long term principal repayment plan in addition to paying off the interest of the loan.
Those interested in interest only loans should also consider the comparatively high level of interest that their loan will accrue over its term.  As opposed to principal and interest loan repayments, interest only loans accumulate interest in relation to the loan total throughout the entire term.  For instance, if a loan is taken out for £8,000, the principal from which the monthly interest payments are determined remains £8,000 until the end of the term.  Since the principal will not decrease over time, borrowers can pay significantly more interest over the long-term.

Interest Rate:

The interest rate is the amount charged for a loan over a period of time and is expressed as a percentage of the outstanding balance.  In addition to paying back the principal, or the amount borrowed, borrowers will typically be responsible for paying interest on their loan.  The interest rate varies from loan to loan and can even vary throughout the life of a loan.  Fixed rate loans, for instance, charge a fixed interest rate for the first few years and then adopts a standard variable rate until the end of term.  Variable rate loans charge a standard variable rate throughout the life of the loan, and this rate usually follows or hugs the Bank of England’s base rate. 
By charging an interest rate, lenders make profit on their loans; if no interest was charged, then the lenders would break even at best and only when borrowers pay back their loans in full.  Nevertheless, lenders understand that borrowers look closely at interest rates when they shop around for the best loans.  Some lenders will therefore try to entice potential borrowers by offering competitive interest rates, introductory or discount periods, or interest only loans.

Interim Financing:

Interim financing is a short-term loan that a borrower may take out temporarily before switching to a permanent loan.  Borrowers may look into interim financing if their finances are set to improve within a year or two, at which point they will switch to a more permanent, long-term loan. 
Interim financing is most popular among commercial real estate developers and can be used to help finance the construction of a property before it can be sold.  Construction companies are especially likely to take advantage of interim financing, or construction loans, in order to finance their projects.  In some cases, lenders may offer interest-only interim financing if borrowers agree in advance to stay with the same lender when they switch to a long-term loan.

Intermediary:

Intermediaries serve as the middlemen between lenders and borrowers.  They are often non-profit organisations hired to collect low interest loans from a variety of lenders and then process loans from this lending pool for the borrower.  An intermediary typically covers loans related to a particular field and can be the go-to source for companies or individuals with specialised borrowing interests.

ISA:

ISA stands for Individual Savings Account and is a tax-free account into which UK residents can deposit savings without having to pay extra income tax.  For the 2008/2009 fiscal year, ISA holders are allowed to hold up to £7,200 in their ISAs – and this amount can be made up of investments in cash or of stocks and shares.  If you are interested in getting an ISA, they are usually free of charge and available at my FSA authorised bank and building societies.

IVA:

If you are struggling to repay a loan or credit, you might try drafting up an Individual Voluntary Agreement between yourself and your lender.  This is a formal agreement between a borrower and a creditor designed to reduce payment expectations so that the struggling borrower can begin to chip away at their overall debt.  IVAs are typically arranged by Insolvency Practitioners and are either approved or disapproved by the creditor.  Once a loan has been repaid under an IVA, the remaining balance of the debt in question is null and void. 
Many see an IVA as an alternative to filing for bankruptcy, although those who are already bankrupt can request one as well.  Furthermore, the benefits of adopting an IVA are two-fold:  the struggling borrower can avoid bankruptcy or begin to work out of bankruptcy by paying back any amount of debt, and the creditor usually receives more repayment through an IVA than they do if the borrower declares bankruptcy.

Late Payment Penalties:

Late payment penalties are charged to your credit card account if you do not make your monthly payments on time, and they are less-than-desirable for two reasons.  Depending on your credit agreement, late payment penalties can be expensive and can serve to increase credit card debt – this can be especially painful if you missed your last monthly payment because you couldn’t afford it.  Furthermore, late payment penalties will adversely affect your credit rating.
If you make an honest mistake and simply miss a payment, don’t fret.  In most cases, the adverse effects of a late payment penalty on your credit rating can be reversed simply by making your next monthly payment or, better yet, paying your balance in full.  In order to avoid having to pay late payment penalties, it could be useful to set up an automatic direct debit from your bank account to your creditor in at least the amount of the required monthly minimum payment.  This way, you will never miss a payment and incur a late payment penalty – even if you can’t pay your credit balance in full.

Lender:

A lender is a financial organisation who provides a borrower with a loan or credit.  In much simpler terms, a lender is someone who loans you money.  More often than not, when someone refers to a lender they are referring to a bank or a mortgage broker.  If a borrower takes out a loan or a mortgage, he or she borrows money from a lender and then repays the lender in instalments over the course of the loan.  In order to make profit, a lender will typically charge interest in addition to the initial loan amount, or principal.  This interest rate is usually expressed as a percentage rate of the principal.
In terms of borrowing credit from a credit card company, the lender is referred to as a creditor.  Nevertheless, repayments to a creditor are similar to those of a lender – except that credit card balances are usually smaller amounts and can be carried over from month to month.

Liabilities:

Liabilities are the debts that are currently owed by a person or a company.  The amount owed in liabilities equals the current value of total assets minus the equity of these assets.  In simpler terms, a borrower pays liabilities in order to assume full ownership of an asset, such as a property. 
Businesses might express liabilities as both the current expenses and the amount of outstanding debt.  This is because many businesses, especially new and small businesses, require business loans in order to afford their daily expenses, particularly in the first 5 years of a company’s growth.

Liquidation:

Liquidation is the process by which a company dissolves or redistributes its assets and occurs when a business can no longer repay their debts.  In many ways, liquidation is akin to filing for bankruptcy, except that liquidation typically refers to businesses and organisations while bankruptcy applies to individuals or couples.  Both liquidation and bankruptcy are forms of insolvency. 
In some cases, a company can liquidate their assets voluntarily, though liquidation more commonly refers to situations where companies have liabilities that far exceed their overall equity or net worth.  Voluntary liquidation is prompted by a consensus of the members of a company and is usually conferred by a resolution, while a compulsory liquidation is in most cases elicited by a creditor who files a petition and submits it with the court.

Loan Agreement:

A loan agreement is a written contract between a borrower and a lender that outlines the terms, conditions, and expectations for loan disbursement and repayment.  Most loan agreements will also delineate payment periods and confirm the total amount that will have been paid at the end of the term, including interest. 
A loan agreement is primarily made up of a series of covenants, or loan conditions, and it is the borrower’s responsibility to adhere to these covenants throughout the term of the loan.  If a borrower ignores or breaks a covenant, he or she risks defaulting on the loan. 
Lenders are required by law to honour a cancellation period immediately after the loan agreement has been signed.  The cancellation period was introduced by the Consumer Credit Act of 1974 in order to safeguard the borrower from misinformation and hidden fees.  Under the Consumer Credit Act of 1974, a borrower can only cancel a loan agreement if he or she signed the loan contract face to face with the lender and away from the lender’s office.  In other words, if you signed the loan agreement in your own home, you will be able to cancel the agreement during the cancellation period. 
It is absolutely in your best interest to read over a loan agreement carefully, and you might even consider consulting an independent financial advisor before you sign it.

Loss Reserves:

Building a loss reserve is a measure that many lenders take to safeguard their lending businesses against potential losses from loans.  By setting aside a separate amount of money, lenders can tap into the loss reserve if they have experienced poor quarterly profit or if the economy takes a turn for the worse.  This way, if borrowers by and large are not meeting their loan repayments, a lending company will remain secure.  Lending businesses typically forecast potential dips in profit based on a worsening economy and would then be likely to pay larger amounts into their loss reserves in anticipation of slackening loan repayments.
Businesses other than lending businesses are likely to have loss reserves as well.  The only potential downside to paying into a loss reserve is that a company will post a lower quarterly profit.  Nevertheless, many businesses find paying into a loss reserve to be essential to protecting their long-term viability.

Market Rate:

The market rate is the amount of interest that a borrower must pay a lender at any given time.  Borrowers almost always charge interest at or above the current market rate, though some loans, such as crisis loans, can be interest free.  These interest-free loans, however, are typically government subsidized.  If a private lender advertises an interest-free loan, the interest-free period is in all likelihood limited or introductory – after all, a lender makes profit on a loan by charging interest.
In most cases, lenders are required by law to adhere to the Bank of England’s base rate as a barometer of the current market rate.  However, market rate can more broadly be used to refer to the standard compensation for a particular service; both borrowers and potential employees hope to be compensated for their services at the market rate in question.

Mortgage:

Buying property is one of the most expensive undertakings in any individual’s life, and for this reason a loan of some sort is almost always required in order to put down an offer.  Simply put, a mortgage is a loan used towards the purchase of a home or property.  In all likelihood, if you are looking to buy a house, you will need to take out a mortgage.
There are typically two types of mortgages offered to budding homeowners: fixed rate and variable rate mortgages.  Fixed rate mortgages offer borrowers a fixed interest rate over a predetermined period at the start of the mortgage term. These introductory periods typically range from 1-5 years, after which the interest rate will revert to the lender’s standard variable rate.  The interest rate on a variable rate mortgage, however, will change throughout the mortgage term as the lender increases or decreases their interest rates.  These mortgages involve much more risk on the behalf of the borrower, as mortgage rates can rise at any time.  As a result, many lenders offer introductory discount rates to entice potential borrowers. 
Once a homebuyer has taken out a mortgage, he or she may also consider remortgaging or taking out another mortgage somewhere down the line.  It is common for homeowners to remortgage once the introductory discount rate period of a variable rate mortgage ends – by doing so, you can take advantage of the introductory low interest rates or another mortgage plan.  If a homeowner would like to make renovations on their property, or need a large amount of money in a pinch, they might also look into taking out another mortgage on top of the property mortgage – in the UK, this type of loan is most commonly referred to as a home equity loan.

Mortgage Lender:

A mortgage lender is a financial organisation that loans a large amount of money to a borrower explicitly for the purchase of a home or property.  A mortgage lender is just one of several types of loan lenders, though mortgage lenders typically deal with large loans repaid over a long period of time.  If a borrower takes out a mortgage, he or she borrows money from the mortgage lender and then repays the mortgage lender in instalments over the course of the loan.  In order to make profit, a mortgage lender will typically charge interest in addition to the initial mortgage amount, or principal. 
The amount of money that a homebuyer can borrow from a mortgage lender will vary from mortgage to mortgage.  In some cases, borrowers only need a percentage of the property’s overall value in order to cover the total costs, while other borrowers might need close to or even all of the home’s cost.  Generally speaking, however, most mortgage lenders require some sort of deposit, so homebuyers will be best prepared if they save at least 10-20% of a property’s overall value before they take out a mortgage.

Negative Covenants:

Loan agreements are often rife with negative covenants in order to ensure that the borrower will be able to pay back the loan on time and in full.  A negative covenant is a type of covenant, or promise made to the lender by the borrower – it refers specifically to covenants designed to prevent the borrower from doing something.  A negative covenant may, for example, require that the borrower not take out any other loans throughout the term of the original loan without the lender’s consent. 
If you violate a negative covenant, you can risk defaulting your loan.  Not only will this result in a bad credit rating – in the case of a secured loan, the borrower can legally take ownership of the collateral.

Negative Equity:

An asset is said to hold negative equity if its current value is less than the amount taken out in loans to procure it.  In simpler terms, if your asset – a home, for example – is worth less after the loan is repaid than it was before the loan was taken out, then it has negative equity.  A homeowner typically hopes that, over the course of the mortgage, the value of their house will exceed the amount they are paying towards the mortgage, including interest. 
Equity can be used as collateral when a homeowner is hoping to take out another mortgage such as a home equity loan, so having negative equity can hurt your chances of getting another mortgage down the road.  Negative equity can also make it difficult to remortgage your home for a lower interest rate; mortgage lenders will typically look less favourably on first mortgages that yield negative equity.

Net Working Capital:

The net working capital can also be referred to simply as working capital and is the amount of money a business has at its disposal once it has taken expenses into account – in other words, it is the company’s assets minus its liabilities.  Businesses always want to ensure that they have a positive net working capital so that they can continue to provide a service to their customers.  In order to do so, they will have to stay abreast of both short-term and long-term expenses, and in the case of a company’s expected growth, they will often forecast increased expenses.  If a company posts a negative net working capital, they may have to seek liquidation.

Offset:

In the simplest of terms, offset refers to the pitting against of one fund with another – to use repayments to absorb debt.  But offsetting can also refer to a unique and useful way to lessen the overall amount that you repay over the term of a loan’s repayment.  An offset mortgage, for example, reduces the mortgage debt simply by taking advantage of an already existing savings account – in other words, a borrower’s savings can be used to offset the balance of an outstanding mortgage.   Say, for instance, that a borrower has £80,000 in mortgage debt and £20,000 in savings.  By taking out an offset mortgage, the balance of the mortgage will be reduced to £60,000 – that is, the mortgage minus the savings. 
Offset mortgages or loans are attractive to potential borrowers because a smaller mortgage means cheaper interest payments.  Many people thinking about taking out a mortgage are also paying into and accumulating savings, so securing an offset mortgage is a great way to cut back on monthly interest using money that has already been saved.  In many cases, emergency fund accounts or college savings can also be used to reduce the balance of the mortgage.

Overpayment:

If a borrower overpays a loan, this means that he or she has paid more than necessary towards their payment instalments.  Say, for instance, that your lender stipulates in your debt service timetable that you are required to pay £100 each month, but one month, perhaps because you received a bonus or get a pay raise, you pay £150 towards your loan.  This would be considered an overpayment and could be especially beneficial if, sometime after the overpayment, you find that you cannot pay the instalment in full.  The £50 in total overpayment would help to offset the underpayment. 
Though most lenders allow borrowers to make overpayments, they typically will not allow borrowers to repay their entire loan before the end of the loan’s term.  If a borrower decides to do this, he or she will often incur an early repayment penalty or an early redemption charge.  This is because a lender expects to make a certain amount of profit on the interest of the loan.  If you repay the full amount before the end of the term, then the lender will miss out on several months or years worth of interest payments.

Payday Loan:

A payday loan is a short-term loan designed to help borrowers make ends meet while they wait for their next payslip.  You might need a payday loan if you had to pay for unforeseen expenses or received an unexpected pay cut.  Payday loans typically cover amounts up to £1000 and must be repaid within 31 days.  This is to ensure that borrowers are not taking payday loans out for reasons other than to bridge their paydays.  As a result of their high interest rates, it is also not advisable to take out a payday loan for any other reason than to meet your monthly finances.  Once you receive your next pay check, you should pay off your payday loan right away.

Payment Holiday:

Some loan or mortgage lenders will allow borrowers to take a payment holiday, or a break from having to make payments towards their loans.  If you have recently been made redundant or incurred other unexpected losses, taking a payment holiday could be a great alternative to having to pay late payment penalties. 
Whether or not you are allowed to propose a payment holiday to your lender will be outlined in your loan or mortgage agreement.  Lenders are more likely to offer payment holidays to borrowers of long-term loans or mortgages in order to entice borrowers who are weary about taking out hefty loans.  On the one hand, if you have the option of a payment holiday, you won’t have to worry about incurring any charges or fees if you can’t make a payment.  On the other, taking too many payment holidays will not help to decrease your debt; your balance will typically be rolled over and can therefore increase the overall interest that you repay to your lender.

Payment Protection Insurance:

In order to avoid falling into debt in the case of illness, emergency, or unemployment, many borrowers take out payment protection insurance.  These types of insurance plans are designed to keep up with loan repayments if a borrower can no longer do so due to unforeseen circumstances.  This means that the borrower will not risk falling deeper into debt because of late payment penalties, nor will they have to worry about defaulting on their loans. 
Borrowers who take out a payment protection insurance plan will typically pay into a premium at the same time that they pay off their loans.  In the event that they need to fall back on payment protection insurance, payments towards their debt will be made in proportion to the size of their premium.  The longer you have payment protection insurance, the more the insurer will be able to contribute towards your debt if you become unwell.

Personal Contract Hire:

Also known as a hire purchase loan, personal contract hire is a good option for borrowers interested in acquiring an item quickly by paying comparatively little upfront.  If you personal contract hire a certain good, then you typically put down an initial deposit and make steady monthly payments thereafter.  Once you make the initial deposit, you can use the item at your leisure.  You will not assume complete ownership, however, until you have completed your personal contract hire repayments in full. 
By far, personal contract hire agreements are most commonly offered by car dealerships in an effort to get potential customers to “buy now and pay later”.  Customers are especially keen to hire purchase if they are in desperate need of a vehicle or if the car of their dreams is offered at an exceptionally good price.   
If you are interested in a personal contract hire, however, there are several things that you should keep in mind.  Personal contract hire agreements typically have higher interest rates than personal loans because you have the added benefit of acquiring the goods right away.  Furthermore, if you fail to make repayments, then the lender can legally repossess the item in question.  Committing to a personal contract hire is rarely a good idea if you do not actually intend on paying the loan in full and taking complete ownership of the item at the end of the loan’s term.

Personal Contract Purchase (PCP)

One of the most difficult things about buy a car is coming to terms with depreciation: once a new car is purchased, its worth will decrease the more you drive it.  Coordinating a personal contract purchase (PCP) with your car dealer, however, could help you decrease your investment losses from depreciation altogether. 
A personal contract purchase begins as a standard lease – that is, the borrower puts down a deposit and can use the car, but does not yet own it.  But before the lease is signed, the borrower and the car dealer agree on the value that the car will be worth at the end of the lease period – this is called the Figure Guaranteed Value (FGV).  The total of the PCP to be paid in monthly instalments is then determined by subtracting the FGV and the deposit from the initial value of the new vehicle.  Though borrowers will have to pay interest on this lease amount, they lose less overall from the vehicle’s depreciation over the lease’s term.  Once the lease period ends, the borrower has the option of purchasing the vehicle for the price of the FGV. 
It could be worth looking at personal contract hire plans if you are thinking about a personal contract purchase, particularly if you are interested in eventually owning the vehicle.  By the time you have paid the total lease amount and its interest, and then pay the FGV, you may have paid more than the value of the new car to begin with.  Personal contract hire agreements, however, are geared towards eventual ownership of the vehicle from the start.

Personal Loan:

A personal loan is a loan that an individual can take out for any reason.  There are many types of personal loans, but all are either secured or unsecured.  A secured personal loan is a loan that requires collateral in order to be issued; the borrower must pledge the value of an asset to a lender so that, if the borrower defaults, the lender can claim ownership of the collateral and profit from its equity.  An unsecured personal loan does not require collateral and is therefore not as secure as a secured loan.  For this reason, unsecured personal loans tend to carry higher interest rates than secured loans.
Other major loan types other than personal loans include business loans and student loans.  Though student loans can be considered a type of personal loan, student loans tend to carry lower interest rates than most other personal loans.  Student loans are also more likely to be subsidized by the government.  Business loans, meanwhile, can be secured by accumulating business credit, while personal loan lenders will almost always conduct a credit check of the borrower’s personal credit history.  Borrowers interested in personal loans would therefore be offered personal loans with lower interest rates if they have maintained good credit in the past.

Poor Credit Loan:

Poor credit loans can also be referred to as bad credit loans or adverse credit loans and are designed specifically for borrowers who have poor credit ratings.  Though they can usually be arranged for large and small amounts, poor credit loans nearly unanimously have high interest rates.  This is in order to offset the risk that the lender takes on by lending money to a borrower with a poor history of paying back credit.
Despite their relatively high interest rates, poor credit loans can help those with bad credit to improve their credit ratings.  By paying off your poor credit loan on time and in full, you can turn a poor credit rating into a good one.  Some lenders even offer repayment plans whereby borrowers with poor credit can switch to lower interest repayment plans once they have improved their credit history.

Portfolio:

A portfolio is a combination of assets, both financial and non-financial, and is used to assess a company’s or individual’s viability.  A portfolio differs from net worth in that a portfolio includes investments that a non-financial and some that depreciate in value. 
A growing company typically looks to diversify their portfolio by including a variety of assets; unlike a company’s net worth, a portfolio is considered strong based on the worth and variety of their investments.  Certain risks can be diverted by owning a wide variety of assets, particularly if a depreciated asset is counterbalanced by an asset that is growing stronger.

Pre-approved Loan:

More often than not, a pre-approved loan usually refers to a pre-approved mortgage – that is, a mortgage that has been approved before the borrower even begins looking at properties.  Most real estate retailers are more eager to work with homebuyers who have been preapproved for their mortgage; the homebuyer will have a better idea of their budget and is more likely to make an offer that they can follow through with.  It is therefore especially important to be pre-approved for a mortgage during a seller’s market.  
There is a crucial difference between being pre-approved for a mortgage and pre-qualifying for a mortgage.  When a homebuyer is pre-qualified for a mortgage, this simply means that a mortgage broker has assessed their finances and thinks that they should be able to secure a mortgage once they apply.  A pre-approved loan, on the other hand, is a binding agreement between mortgage broker and homebuyer:  the mortgage has been approved, and the homebuyer can expect a loan in certain amount.

Principal:

The principal of a loan is the amount of money that a borrower actually receives from the lender.  Ideally, the principal should cover the amount that you needed to borrow in the first place.  If you take out a loan for £1000, and receive a one-off lump sum check from the lender for £1000, then your principal is £1000. 
This seems simple enough, so much so that you may wonder why there is a term for it in the first place.  More often than not, the principal is talked about in relation to another part of the loan, such as the interest.  Since you are borrowing money from a lender, and the lender has to make profit on the principal, an interest is usually charged in relation to the principal.  By the end of the loan’s term, you will have paid off the entire principal and the interest accrued along the repayment of the principal.

Quotation:

A lender will typically advertise their loan products by offering individualized loan quotations.  Once you’ve submitted a brief overlook of you personal finances – including your income and credit history – a lender will provide you with a quotation outlining the overall costs, fees, and charges that would be incurred by taking out a specific loan.  If you are shopping for or researching loans, you can compare different lenders, rates, and loan products by getting a wide variety of quotations.  Though most lenders typically advertise key specs such as APR and loan term for a given loan product, a quotation will help you better assess your own ability to repay a loan.

Recourse:

If a borrower refuses to pay back a loan, a borrower may seek recourse.  In other words, the borrower might take ownership of any assets that were previously outlined in the loan agreement.  If the loan agreement lists no assets vulnerable to recourse, then the lender can take the asset being financed such as a house in the case of a mortgage.  If a borrower defaults on a first mortgage, for instance, then the lender can foreclose on the property by claiming recourse. 
Threatening recourse is a particularly powerful way that lenders can force borrowers to pay off their loans.  Lenders can also petition the court to seize the borrower’s earnings in order to make payments towards the debt.

Refinance:

If a borrower decides to refinance a loan, this means that he or she has chosen to switch loan products – and in some cases lenders – in order to secure more favourable interest rates or payment schedules.  Borrowers may decide to refinance after an introductory discount rate period or once the fixed rate period of a fixed rate loan has run out.  Depending on your borrowing needs, refinancing could be a great way to keep interest rates low throughout loan repayment. 
When a borrower refinances a mortgage, he or she is said to remortgage.  Remortgaging is especially popular because mortgages are typically long term.  Introductory or discount rate periods that last for several years can give the borrower ample time to research new discount rate mortgages.
Remortgaging or refinancing is different from taking out another mortgage or a second loan.  When you refinance a loan, you are transferring the remaining debt balance from one loan product to another and therefore continue repaying a single loan.  When you acquire a second loan, you have two separate loans and therefore have to pay back two loans at once.

Refused Credit:

If you have been refused credit, this is probably because you have a bad credit rating or an unreliable income.  Borrowers with bad credit ratings should look into bad or poor credit loans.  These are designed specifically with borrowers who have poor credit ratings in mind. 
Despite their relatively high interest rates, bad credit loans can help those with bad credit to improve their credit ratings.  By paying off your bad credit loan on time and in full, you can turn a bad credit rating into a good one.  Some lenders even offer repayment plans whereby borrowers with bad credit can switch to lower interest repayment plans once they have improved their credit history.

Roll Over:

If a borrower asks to roll over their loan, this means that he or she wants to extend repayment past the predetermined end date of the loan’s term.  A borrower may negotiate a roll over with their lender if he or she will not be able to repay the loan in full by the end of term.  Lenders, however, are more likely to raise the interest rate if they agree to the roll over. 
A roll over loan is a particular type of loan, usually a mortgage, in which a period at which the loan rolls over is built into its overall term.  In other words, a lender might agree to a preset roll over period a few years into loan repayment, at which point the borrower will start paying a higher interest rate – usually the standard variable rate offered by the lender.

RPI:

RPI stands for Retail Prices Index and is used to measure the average rise or fall in the prices of consumer goods.   Rises or falls in the RPI will reflect a change in inflation; if the RPI increases, then there is high inflation, but if the RPI decreases, there is low inflation.  These changes will also reflect rises and falls in the average cost of living since the RPI also includes price changes in housing costs such as council tax and mortgage rates.

Secured Loan:

A borrower puts down collateral for a secured loan in order to assure the lender that he or she will meet loan repayments on time and in full.  A secured loan can therefore be said to be secured with the collateral, which in the case of a mortgage is typically the property itself.  If the borrower defaults on a secure loan, then the borrower has the right to claim ownership of the collateral.  
Secured loans generally have cheaper interest rates than unsecured loans.  This is because the lender can rely on the value of the collateral if the borrower refuses to make repayments.  Unsecured loans, on the other hand, are not secured with collateral and are therefore riskier for the lender; if the borrower defaults on an unsecured loan, the lender cannot fall back on collateral to claim back a profit from the unpaid loan.
A home equity loan is a popular type of secured loan.  If a homeowner who has paid off a part of their first mortgage needs a large loan, he or she might offer their home equity as collateral for a home equity loan.  If the homeowner defaults on home equity loan payments, however, then the lender has the right to claim ownership of the home equity.  In some cases, lenders can use home equity to purchase the first mortgage and therefore foreclose on the property.

Security:

Security is basically another word for collateral and is offered to lenders in order to obtain a secured loan.  More often than not, security takes the form of a valuable asset such as property, bonds, and stocks. 
If you offer security to a lender, this means that you have pledged the value of an asset to the lender in exchange for a secured loan.  Another way of saying this is that you offer security in order to offset the risk that the lender takes on by lending you a large amount of money.  Just because you’ve put down security, however, doesn’t mean that you should be anything less than dutiful about loan repayments.  If you fail to pay back the loan, the lender has the right to claim ownership to the asset-in-question. 
That being said, security is required only by secured loans and can be a great way to ensure lower interest rates if you have bad or no credit rating.  Unsecured loans, on the other hand, do not require security and typically come with high interest rates.  This is because unsecured loans are not secured by the value of an asset, meaning the lender assumes a comparatively high level of risk.

Self Assessment:

If you pay taxes, you may need to complete a self assessment for once a year.  A self assessment form is basically a tax return in which you report your yearly income and capital gains.  You can also claim tax allowances or reliefs against your overall tax bill if your circumstances have changed during the fiscal year. 
Typically, employers or pension providers are responsible for deducting your taxes from your earnings, so it is normally not necessary to fill out a self-assessment form.  If taxing your earnings is more complicated – if you are self-employed or a landlord, for instance – you are required by law to complete a self assessment form.  Those who have accumulated a significant amount in capital gains (more than £9,600 for the 2008/2009 fiscal year) will also have to complete a self-assessment form, even if their employer docks income tax from their earnings; capital gains tax is a tax separate from and in addition to income tax.

Self-employed:

Simply put, if you are self-employed then you work for yourself.  Though small or personal business owners are the most common type of self-employed, solicitors and business partners can also be considered self-employed – that is, no employer besides themselves pays into their earnings.  If you are self-employed, you will be responsible for filing your own self assessment in order to report your yearly income and capital gains. 
It is typically more difficult for lenders to accurately assess your income if you are unemployed, and for this reason securing a loan or mortgage may be more difficult.   Many self-employed loans, however, are designed for those with less reliable incomes, and lenders will consider an applicant for self-employed homeowner’s loans on an individual basis; instead of looking at payslips, they may instead request business account audits.  For loans other than mortgages, you might also consider a flexible loan if you are self-employed.

Student Loan:

Student loans are available to students who need help paying tuition and other college expenses such as accommodation and student costs.  In the UK, student loans are publicly financed by the government and are therefore offered at lower interest rates than other personal loans – typically below the current base rate.  In addition to carrying low interest rates, student loans in the UK can be repaid over a long period of time.  The borrower can also usually postpone repayments if they are unemployed, though the student loan will continue to accumulate interest in the interim.
Government subsidized student loans will typically cover the tuition costs of attending university in the UK, but students may also need to take out a private student loan in order to pay for their accommodation and living costs.  These private student loans will not have the reduced rates of the publicly financed student loans, so students should be especially careful when comparing the interest rates of competing lenders.  Some banks, for instance, may offer reduced rates to students who hold student current accounts at one of their branches.  If you have relocated for university and were looking to open up a current account anyways, this could be a great alternative to securing a private student loan from another lender.

Subprime:

It is likely that you have heard of the term subprime in the wake of the current credit crunch.  Subprime is a term used to refer to borrowers with a poor or bad credit rating, and many experts agree that subprime lending, or approving mortgages for those considered subprime, has played a major role in the rise of foreclosures.  This is because subprime borrowers have a history of defaulting on loans and are therefore considered more risky for the borrower – that is, in light of their credit history, they are less likely to repay their loans in full and on time.

Subprime Lending:

Subprime lending is when a lender issues a loan to a borrower with a poor credit rating.  The subprime borrower may have a poor credit rating if he or she has defaulted on a loan in the past, has been issued a CCJ, or has declared bankruptcy.  This means that he or she has a higher likelihood of defaulting on future loans and therefore poses a greater risk to future lenders. 
Subprime lenders understand that even borrowers with poor credit will need to borrow credit and have designed subprime loans with these borrowers in mind.  Though subprime lenders may approve borrowers who otherwise might have a difficult time obtaining credit, they will almost always charge them a higher interest rate.  This is to offset the risk that they take on by lending to a borrower with a poor credit history.  Subprime loans can also be referred to as bad credit or adverse credit loans. 
Many agree that a rise in subprime lending played a major role in the current credit crunch, particularly with respect to subprime mortgages.  When the market dips, many homeowners will have a more difficult time paying back their mortgages.  As a result of their poor track record for repaying credit, subprime borrowers are especially likely to falter on payments when the economy is doing badly.  This carries a high price for the subprime lender, who in many cases will have to foreclose on the borrower’s home in order to buffer a loss in profit.

SVR:

Lenders who offer variable rate loans will have their own SVR – or Standard Variable Rate – set in relation to the Bank of England’s base rate.  In other words, the interest rate they offer for a given loan will rise and fall with the base rate, but usually at a 1-2% increase.  Each lender determines for themselves what their SVR will be, and it is a good idea to compare SVRs among different lenders when shopping around for variable rate loans.  Variable rate mortgages will collect interest at the SVR throughout its term, while a fixed rate mortgage will accumulate interest at a fixed rate during its introductory rate period before switching to the lender’s SVR.

Term:

A loan term is typically the total duration of repayment for a certain loan.  Though loans typically have terms anywhere from 1-10 years long, mortgages usually have terms from 20-30 years in length.  In general, if the loan covers a significant expense then the lender is more likely to offer a longer term for repayment.  If a borrower cannot pay back the loan within the term or would like to extend repayment after the term, he or she may propose a loan roll over.  
Sometimes term can also be used to refer to a specific period within the total loan term, such as an introductory or discount rate period.

The Rule of 78:

The Rule of 78 is a handy way to calculate the amount of interest a borrower should have paid at any point during a fixed loan’s term.  The rule is only applicable to fixed rate loans because it anticipates that the borrower will pay less in interest as they continue to repay the loan – that is, as the loan balance, or capital, is paid off, the amount paid towards interest will shrink in relation to the decreased balance.
The number 78 is derived from the 12 months of the year (12+11+10+9+8+7+6+5+4+3+2+1=78).  In your first month of loan with a one year repayment term, you will have paid 12/78ths of the total interest.  In the second month, you will have paid 23/78ths (12/78 + 11/78) of the total interest.  The Rule of 78 isn’t just applicable to loans with a one year term – you can use it for a term of any length, as long as the loan carries a fixed interest rate throughout the entire term.

Title Search:

Before a homeowner finishes payments towards a mortgage, a title company or attorney will conduct a title search in order to make sure that the homeowner has complete legal ownership of the property.  In other words, a title search ensures that the homeowner has no outstanding claims from loan or mortgage lenders.  A title search, for example, might reveal that a borrower has defaulted on a home equity loan and has therefore relinquished a portion of the home equity to a lender in the form of collateral.  If you are closing a mortgage, you will be held responsible for paying for the title search.

Travel Loan:

A travel loan is a loan intended to finance travel or a holiday.  They are typically short term loans in relatively small amounts, but like cash loans or payday loans, they also carry high interest rates.  Unless you think you will be able to pay back the travel loan when you return from travel, you might consider waiting and simply saving up towards your travel expenses – the interest accumulated by a travel loan can make travelling even more expensive.

Underwriting:

Underwriting is the process by which a lender assesses whether or not a borrower is eligible for taking out a certain loan.  In other words, the lender will check the borrower’s credit history, or track record of paying back loans and credit, in order to decide whether or not the borrower is likely to repay the loan.  If a lender determines that a borrower has good credit, then the borrower is likely to be approved for the loan and more likely to be offered lower interest rates.

Unsecured Loan:

An unsecured loan is a loan that is not secured with collateral.  Since the borrower does not pledge an asset to the borrower, the borrower is likely to pay higher interest rates on an unsecured loan.  This is to offset the high risk that the lender assumes if the borrower defaults on the loan; unlike a secured loan, there will be no collateral for the lender to fall back on.
Unsecured loans may be especially hard to find if you have a poor credit rating, and if you are lucky to come across one, it will probably have a very high interest rate.  Putting down collateral on a secured loan, however, can be a good way to offset a poor credit rating.

Valuation:

A mortgage lender will assess if a property is worth a certain value before approving a mortgage, and the process by which this is done is called a valuation.  Since the property is typically considered collateral for the mortgage, mortgage lenders need to ensure that the property’s market value is adequate security for the mortgage amount in question.  Valuation can also more generally refer to the market value of any asset.

Variable Rate:

The interest rate on a variable rate loan will change throughout the mortgage term as the lender increases or decreases their interest rates.  These loans involve much more risk on behalf of the borrower, as loan rates can rise at any time.  As a result, many lenders offer introductory discount rates for variable rate mortgages to entice potential borrowers.  Some common types of popular variable rate mortgages include capped rate mortgages and tracker mortgages.
When a lender offers a variable rate loan or mortgage, they will typically use their own standard variable rate (SVR) in order to determine the interest at a given time.  These standard variable rates will rise and fall in relation to the Bank of England’s base rate, usually at a 1-2% increase.  Each lender determines for themselves what their SVR will be, and it is a good idea to compare SVRs among different lenders when shopping around for variable rate loans.  Variable rate mortgages will collect interest at the SVR throughout its term, while a fixed rate mortgage will accumulate interest at a fixed rate during its introductory rate period before switching to the lender’s SVR.

Warranties:

A warranty is an assurance by a third party that a certain statement or condition is true.  It is different from a guarantee on a loan in that a warranty asserts that a condition is already true while a guarantee asserts that the borrower will repay the loan on time.  In either case, the lender can seek retribution from the party that offered the warranty as well as the guarantor.  If the borrower defaults on the loan, a guarantor will be held accountable for paying the remained of the loan.  If a warranty is found to be untrue, then the party who offered the warranty can in some cases be taken to court by the lender.

Working Capital:

Working capital can also be referred to as net working capital and is the amount of money a business has at its disposal once it has taken expenses into account – in other words, it is the company’s assets minus its liabilities.  Businesses always want to ensure that they have a positive working capital so that they can continue to provide a service to their customers.  In order to do so, they will have to stay abreast of both short-term and long-term expenses, and in the case of a company’s expected growth, they will often forecast increased expenses.  If a company posts a negative working capital, they may have to seek liquidation.

Working Tax Credit:

A working tax credit is available to UK tax payers who work a certain number of hours each week and earn a low income.  Along with the child tax credit, working tax credit was introduced as part of social security initiative in 2003. 
You can qualify for working tax credit if you are 16 years of age or older and work at least 16 hours a week.  You must also be responsible for at least one child or have a disability.  If you are 25 years of age or older, you can receive working tax credit if you work for 30 hours a week or more, regardless of whether or not you have a child or are disabled.  HM Revenue and Customs will also consider your income to see if you qualify for working tax credit.