Glossary - guide to debt terms
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Accident, Sickness and Unemployment Insurance
The insurance pays a percentage of your usual monthly mortgage payment including any insurance if the borrower cannot work because of accident/sickness or unemployment/redundancy and usually for a maximum of 2 years or until back to work.
Always read the terms before taking on this kind of insurance.
Addendum
A Latin term describing an addition or change to a contract.
Administrator
A person given authority to manage and distribute the estate of someone who died without leaving a will.
Adverse Credit
This term is used to describe Credit Problems due to a poor credit history. The borrower may have CCJs, Mortgage Arrears and other credit debt repayment. Abusing credit or failing to meet credit repayments leads to Adverse Credit. When used to describe: Adverse Credit Mortgages or Adverse Credit Loans they mean Mortgages or Loans for people with Credit Problems or Poor Credit Rating
Applicant
The person applying for a remortgage or a loan. Single applicant is just one person and just their income or dual application that takes both applicants incomes and details into consideration
Application
A document detailing a potential borrower's income, debt and other obligations to determine credit worthiness. This can initially be done online but you will eventually have to complete an actual signed application.
Appreciation
An increase in the value of a home or other property. You can use this equity, the difference between value and what you still owe the lender, to pay for debt consolidation.
APR
Annual Percentage Rate is the actual cost of interest on a loan/mortgage and takes into account the amount of interest you will pay and the term of the loan/mortgage. So the higher the APR the more you will pay, the lower the APR, the less you pay. This is the easiest way to compare loans to gain the best rate for you.
Arrears
Mortgage Arrears is used to describe missed, late or under paid mortgage repayments. If you stay in arrears you are likely to end up with a County Court Judgment or CCJ. This can also be described as defaulting on your mortgage or Mortgage Defaults. A limited number of lenders will consider lending credit to people with previous credit problems.
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Bad Credit
This another term used to describe Credit Problems due to an adverse credit history. CCJ's, Mortgage Arrears and other credit debt repayment problems leads to a Bad Credit Rating. Bad Credit is more of an American term with the UK more commonly using Poor Credit. When used to describe: Bad Credit Mortgages or Bad Credit Loans they mean Mortgages or Loans for people with Credit Problems or a Poor Credit History.
Bailiff
An official representative of the courts, who may call round to repossess your possessions or house if you cannot keep up on your mortgage repayments and fail to reach an agreement with your lender to amend your repayments.
Bankrupt
This occurs when a debtor is unable to pay their debts. The lender(s) or creditors move to secure what monies they can from any existing assets (property) held by that person. All property is then administered by the official receiver.
Bankruptcy: Discharged From Bankruptcy
After a period of time a Bankrupt Individual can be discharged from bankruptcy. This then releases them from their financial obligations. There are some lenders that will provide mortgages for ex-bankrupts.
Black Listed
All your credit history will be stored on databases by credit reference companies. A lender will check these to find out your credit status. If you have a severe credit history and your record will be black listed to note severe risk. Some lenders will still lend on this but the interest rate will be high until you can improve your credit history.
Bridging loan
This is a short term loan provided by a bank or building society which covers you if you need to pay for your next home, while still waiting for the money to come through from the sale of your current home. If you do require one of these, you must ensure that the funds to repay the loan will be in place when the loan period expires.
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CCJ or County Court Judgment
If you have not made payment on any debt you have then you will be taken to Crown Court. If the debt isn't satisfied then a decision or judgment made in the County Court, normally for the non-payment of that debt will be registered on your credit file as a CCJ. If the debt is paid or satisfied and a satisfaction certificate obtained it will be noted on your credit file. Having unsatisfied CCJs will seriously effect your credit rating and limit the lenders available to you.
Collateral
The property or other asset which the lender can sell to repay the loan if the borrower does not keep up the mortgage payments. In most cases, the home is collateral on a mortgage. If the borrower fails to repay the loan, the property will be repossessed.
Consolidation or Debt Consolidation
To consolidate your debts means instead of several debts where you are struggling to meet all the repayments you have just one manageable debt with a repayment you can afford.
Credit Check
Before lenders consider lending you credit they will undertake a credit check. A credit check determines your credit history whether you have any CCJs, defaults or outstanding credit card bills using the services of a credit agency (Experian or Equifax). Most high street lenders don't want anyone with a poor credit history.
Credit Scoring
This process is used by most lenders to determine what level of credit risk you are. They use a scoring system based on credit history; good or bad, length at current address, security, employment, income and answering these questions gives them a score or Credit Rating. Mainstream lenders only want high scores. However there are lenders who will find credit to suit your score even if it is a poor credit rating. The majority of your credit history and suitability will be on a national credit database but it is up to individual lenders whether the risk is acceptable.
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Debt Consolidation
To consolidate your debts means instead of several debts where you are struggling to meet all the repayments you have just one manageable debt with a repayment you can afford. However you are actually increasing your debt and paying it over a longer period allowing lower monthly repayments
Debt
Money owed to a lender by a borrower.
Default
When one mortgage payment or a series of payments are missed, the borrower is referred to as being in default. This is similar to having arrears.
Defaults
If you have defaulted on a loan or mortgage it means that you are more than 30 days behind the date your repayment was due. This will be marked on your credit record and would lead to a CCJ if no payment was received or received very late.
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Equity
This is the difference between the amount you owe on your current mortgage and the current value of your property. This amount can be used in a remortgage to allow money for home improvements, a new car, holiday of a lifetime or reduce your monthly premiums.
Guarantor
If you can't borrow enough to buy the home you want someone can act to pay the rest of the mortgage. Parents may act as guarantors for their children when buying their first home. It should be remembered that a guarantor would be fully liable for repayment of the mortgage amount if a borrower defaults. The guarantor should therefore be confident that the borrower will meet all the necessary monthly payments.
Hire Purchase
This term is used to describe purchase brought on credit like cars, electrical items, furniture etc. Usually it is items brought on HP. A credit check will check to see if you have ever had or still have any HP's and the payment history of them.
High street lenders
Providers of mortgage products who can be broadly split into two groups - the building societies and the banks. Banks are profit-making businesses that return a portion of their profits to shareholders in the way of dividends. Building societies on the other hand, are mutually owned organisations, which exist not for profit but for the benefit of the members. They claim that this allows them to return profits to their customers in the form of cheaper products.
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IFA - Independent Financial Advisor
In theory, these intermediaries should look at the entire financial market before making a selection and offer unbiased advice and access to all suitable financial products. they sometimes still have access to special deals not on offer elsewhere because they may subscribe to a mortgage panel along with other advisers and brokers. Together they convince lenders to provide special packages in return for their continued custom. The only trouble is that they have to deliver a certain level of business over a year to remain on the panel, so they may favour some products over others.
Impaired Credit
This refers to the credit rating of an individual who may have CCJs or maybe behind with payments to personal loans or a mortgage. This phrase is also applicable to someone who has
been declared bankrupt.
Interest rate
The is the percentage of your loan that a lender charges you each year for the privilege of borrowing money. The prevailing level of interest charged by lenders depends largely on the economy and the Bank of England base rate. If the Governor of the Bank of England and the Monetary Policy Committee are worried about the economy overheating and causing inflationary pressure, they may raise interest rates. This makes it more expensive to borrow money and therefore the overall demand for borrowing is reduced. Since this is one of the most commonly used instruments for managing the economy, we are subject to fairly frequent changes in interest rate.
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Lender
The building society, bank, mortgage company or mortgage broker with whom you take out your mortgage or other loan.
Negative Equity
This means the value of your property is lower than the amount you owe on your mortgage or secured on it. This will be a problem if you want to move or maybe considering either a remortgage or a secured loan.
Non Status
This another term used to describe Credit Problems due to an adverse credit history. CCJs, Mortgage Arrears and other credit debt repayment problems leads to being classed as Non Status rather than Status. When used to describe: Non Status Mortgages or Non Status Loans they mean Mortgages or Loans for people with Credit Problems or a Poor Credit History.
Payment Break
This term is more commonly called a payment holiday. If agreed with your lender, Payments can be stopped for a limited period whilst you get over a financial tight spot. Also see Overpayments and Underpayments.
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Payment default
This results when you are unable or simply unwilling to meet your mortgage repayments. If you default on your payments, the lender is ultimately entitled to sell your home in order to recover the loan. Different lenders will have different policies on how long they give you before they start the legal proceedings to recover the loan. Many will have a separate schedule of charges which you will incur before they start proceedings.
Personal Loan
A personal loan is a term used to cover secured loans and unsecured loans. This is a loan taken out by a person or persons hence the name Personal Loan.
Poor Credit
This another term used to describe Credit Problems due to an adverse credit history. CCJs, Mortgage Arrears and other credit debt repayment problems leads to a Poor Credit Rating. Poor Credit is more of an UK term with America more commonly using Bad Credit. When used to describe: Poor Credit Mortgages or Poor Credit Loans they mean Mortgages or Loans for people with Credit Problems or a Poor Credit History.
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Remortgage
A remortgage is a new mortgage with arranged through a different lender. You use this by getting a new mortgage on your house. The difference between what you have already paid of your last mortgage and the current value is classed as equity in your property. You can have a new mortgage on your existing home either the same size and have a lower repayment or make it bigger and have funds for home improvements or a holiday.
Repossession
Usually occurs after a borrower seriously defaults on payments. The lender then legally evicts the borrower and usually auctions the property to recover losses.
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Salary
The money you receive from your employment. Commission, overtime and bonuses are not normally considered as part of your gross income by the lender, unless you receive them at a guaranteed level. Any supplementary payment that is not guaranteed but which can be shown to remain above a certain level over a period of time can sometimes be taken into account, though many lenders will only incorporate a portion of this money into the calculation.
Secured Loan
This is a Personal Loan that uses equity in your home for security to allow better interest rates than being an Unsecured Loan. You can use this loan for debt consolidation or home improvement. However, your home is at risk if you fail to keep up repayments secured on it.
Security
When a loan is taken out it is 'secured' on a property, the borrower agrees to the lender creating a charge over the property; the deed makes reference to the rights and obligations of both parties as detailed in the Legal Charge. Thus the property is known as the 'security'.
Settlement Figure
The sum quoted in order for the loan to be repaid during the contracted term.
Status
The credit-worthiness of a potential borrower.
Self Employed
An individual who works for himself/herself. This will include partners in businesses and professional practices such as lawyers.
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Tenant Loan
A Non-Homeowner or Tenant will take out an unsecured loan because they have no home to act as security for the Loan. This is a Personal Loan for Tenants and Non-Homeowners.
Unsecured Loan
A Non-Homeowner or Tenant will take out an unsecured loan because they have no home to act as security for the Loan. This is a Personal Loan for Tenants and Non-Homeowners.
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