Financial Terms Glossary
At ACF Car Finance we understand how it can be confusing when it comes to finding finance for a car. That's why we've put together this glossary which is designed to explain some of the key financial terms.
Annual Percentage Rate (APR)
The APR is required by law to be quoted by every firm involved in advertising and processing the business of advancing credit or lending money. The APR is defined in regulations that were made under the Consumer Credit Act 1974 and is a measurement of the total charge for credit that will be made by the lender over the whole term of the loan. The APR also takes into account any other charges which the borrower has to pay.
Arrears
The amount you have not paid in respect of scheduled repayments of a debt you owe i.e. sums that remain outstanding past their due date of payment. This is different from the balance owing under the debt.
Asset
Property available for the payment of debts.
ATM card
A card that allows you to access your account via an Automatic Teller Machine or ATM facility.
Bank account
An account (usually with a high street Bank or Building Society) which allows you to deposit your money and gives you easy access to your money in the future using a cheque book and/or debit card.
Borrower
A person owing money that has been lent to them by a bank or other lender. Another name for a borrower is a debtor.
Cash
Money in the form of notes and coins.
Cheque
A slip of paper that instructs a bank to pay a sum of money to the person (usually) named on the cheque (the payee). If you have a cheque account then you can write a cheque for a specified amount of money and give it to the payee who will present it to a bank. That bank will ask your bank for the money from your cheque account and give it to the payee. If a cheque is made out to 'cash' or 'bearer', then whoever hands the cheque to a bank can exchange it for cash. A cheque crossed 'Not Negotiable' or 'Account Payee Only' can usually only be deposited into the bank account of the person named on the cheque.
Co-borrower
A person who borrows money jointly with you under a joint debt. Each co-borrower is both jointly and individually responsible for the repayment of the loan. This means that both co-borrowers are responsible for the debt but if one co-borrower refuses to pay the other co-borrower can be asked to repay full amount of the loan.
Contract
A written Credit Agreement that incorporates terms and conditions.
Credit
Credit can have different meanings in different circumstances. It can be the value of a transaction on a bank account that shows money going into the credit on an account. It can also mean the amount of money you have. If your bank account is £200 in credit, it means you have £200 in the account to spend. Credit also means buying goods or services now (on credit) and paying for them later.
Credit limit
The maximum amount that a bank or other lender is prepared to let you borrow.
Credit rating
A person's credit rating is based on their credit file or credit history maintained by credit reference agencies based on information supplied to them by lenders. A person who has a bad credit history is likely to have a poor credit rating. Banks and other financial institutions obtain an applicant's credit rating when considering an application for a loan. A person with a poor credit rating may find it very difficult to obtain a loan. Banks and other financial institutions obtain this information through credit reporting agencies, such as Experian.
Credit Reference Agencies (CRAs)
Companies that hold information regarding individuals that is of interest to lenders. This information can be used in order to help the creditor make a decision on whether or not to lend the consumer money.
Creditor
Someone who is owed money - the lender.
Creditor (secured)
A creditor who holds an asset belonging to the borrower/debtor as security for the repayment of the loan. If the borrower/debtor fails to repay the loan, the secured creditor has the right to sell the secured asset in order to recover some or all of the money owed. Any asset which is provided as security for a loan must be listed in the loan contract.
Debtor
Someone who owes money - the borrower.
Debit
Most commonly, a debit is a withdrawal from a bank account.
Debit card
A card that allows a customer to access his money held in a bank account through an ATM machine. See also ATM card.
Direct debit
A payment that is made directly from a bank account and is usually an electronic payment. A direct debit is usually a transaction that has been requested by the account owner under a direct debit instruction to his bank to take place at a specified time and on a specified date in relation to a specified payment.
Default
When you fail to meet the terms or conditions of a Credit Agreement this is known as a default. An example of a default would be not making your scheduled repayments on a loan or not making them on time.
Deposit
An amount of money put into a bank account or money that is left with someone or a company to secure the purchase of an item.
Finance company
A company which provides funds to customers.
Guarantee
With regard to a warranty: a promise or an assurance, especially one given in writing, about the quality or durability of a product or service.
With regard to a loan: a legally binding promise given by a person (the guarantor) to pay a debt, if the borrower defaults. It can be a secured or unsecured guarantee.
Guarantor
A person or company that provides a guarantee.
Interest
The amount a lender charges a borrower for the use of the lender's money. For example, if money is borrowed from a lender in the form of a loan, the lender will charge interest for the use of that money. Interest can be charged daily, weekly, monthly or annually.
Joint debt
When two or more people borrow money together or are responsible for a debt together. A lender can recover payment of the whole amount from either party, unless the contract limits the amount each party must pay.
Loan
Money lent to a person for an agreed period of time (called the term). By the end of the term, the money must be repaid, often with interest added.
Overdue
An amount of money that has not been paid by the due date and is still owed.
Receipt
A record showing that a payment has been received or an invoice has been paid. Receipts usually have a reference number and show the amount of tax that is included in the payment. A receipt is important proof that goods and services have been paid for.
Records
Any documents and paperwork related to a loan or a transaction financed by the loan.
Repossession
A lender may be able to claim or take possession of any property, assets or investments that have been provided as security for the repayment of a loan in circumstances where the borrower cannot repay the loan.
Security
An asset offered by a borrower to a lender as security for the repayment of a loan. The security is aimed at ensuring that the lender is able to recover the full amount of the loan (by selling the asset) if the borrower can't repay the loan.
Standing Order
An instruction to a Bank to pay a fixed amount to a person or organisation at regular intervals.
Term
A period of time. For example, the length of time for which a deposit is made, or the time in which a loan must be repaid.
Terms and conditions
Terms and conditions set out the specific obligations of each party in respect of a transaction or product. They outline how a bank product or service can be used and should be read and understood before the product or service is used by the customer.
