Get to grips with loans jargon

Loans terminology may seem a bit dull but understanding it could save you time and money. Our personal loans glossary takes you on a journey from A-Z of terms that we lenders often use.

A

Annual percentage rate (APR)

The APR is the rate of interest and any charges you’ll pay on top of the loan amount. You’ll only pay interest on the outstanding balance.

Arrangement fee

Also known as an application fee, this is a fee that some lenders charge for the loan to be set up. With Sainsbury’s Bank loans, you won’t pay an arrangement fee.

B

Base rate

The rate of interest set by the Bank of England. This is usually the lowest rate that lenders will charge interest at.

C

Credit rating or score

Your credit score is a rating that’s generated by summarising information from your credit report. It’s one of the factors that lenders use to work out how likely you are to manage and repay debt responsibly. It can also influence how much you get to borrow, and at what interest rate. Your chance of being accepted for a loan will generally go up if you have a high credit score.

Credit reference agency

Credit reference agencies like Equifax and Experian pull your credit history into a credit report, which they hold. They use your credit report to work out your credit score and will pass this information to lenders when you apply for a loan.

Credit report or credit history

A credit report or history is a record of your financial borrowing, including information about late payments, bad debt, bankruptcy and more.

Creditor

This is the lender that you’re borrowing from.

D

Debt consolidation

This is when you transfer various existing debts into a single loan.

E

Early repayment charge

A one-off payment that you might have to make if you decide to repay your whole loan early. At Sainsbury’s Bank this is equal to 58 days interest.

F

Fixed interest rate

A set rate of interest that won’t go up or down during the period of the loan.

I

In arrears

If you’re in arrears with a payment, it means that the payment is overdue. You might get charged interest and / or late payment fees . It may also affect your credit score.

Inflation

The increase in the price of goods and services in an economy over a period of time.

Interest rate

An interest rate is a percentage charged on the total amount you borrow. Typically, this is expressed as an annual percentage rate (APR) of the loan outstanding.

L

Loan agreement

A contract between a lender and borrower (you), spelling out the terms and conditions of the loan.

Loans calculator

A loans calculator is usually an online tool that quickly estimates how much you may pay in total, depending on the interest rate. You simply enter the amount you want to borrow plus your preferred loan period, and the calculator does the rest. It’ll usually also give you a good idea of how much your monthly repayments might be.

Loan purpose

This is what you’re planning to use the loan for. For example, to help cover the cost of home improvements, a car or your wedding.

Loan term / period

The time period over which the loan is paid back.

Lending criteria

The criteria that you have to meet before you’re eligible to apply for a loan. These might include things like income level, age and being a UK resident.

M

Monthly repayments

This is the monthly amount you pay the lender throughout the loan term, covering the money you borrowed as well as interest.

O

Overpayments

This is any payment that you make to the lender, over and above the monthly repayment you originally agreed on. For example, if you decide to make an extra lump sum payment or pay back more than you have to every month.

R

Representative APR

A representative APR is a guide to what may be offered to customers when taking out a loan. When a representative APR is advertised, it means that at least 51% of customers will receive the advertised rate. Depending on the credit profile of a customer, not everyone will be offered the same rate.

Right of withdrawal

This means that you have the right to cancel the loan agreement if you change your mind. There will usually be a time limit on this; for example, you might have to withdraw within 14 day s of the agreement start date.

T

Total amount repayable

The total amount of money that you borrow, plus the interest the lender charges you.

U

Unsecured loan

An unsecured loan is the same thing as personal loan. Unlike secured loans, personal loans aren’t secured against your property. This means that the lender won’t have any claim on your assets if you don’t keep up repayments. The maximum amount you can borrow is usually smaller with an unsecured loan.

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