Loans Glossary

A

Adverse Credit – A person with adverse credit has been identified as being high risk in the eyes of financial service organisations. This could be for a number of reasons such as they have a County Court Judgement (CCJ) against them, they’ve defaulted on a loan or have a history of delinquency.

APR – Annual Percentage Rate. This is the total charge for credit expressed as an annual rate. It is a standard way of illustrating how much the loan will cost on an annual basis.

Arrangement Fee – A fee some lenders charge for arranging your loan. Bank of Scotland choose not to charge an arrangement fee for loans – to help keep the cost down for customers.

B

BACS Transfer – This is an electronic transfer of funds from one account to another. We use it to put money into customers’ bank accounts when they successfully complete a loan application.

Bad Credit Risk – The term used to describe someone who is seen as a high-risk candidate for a loan or credit. This could be because they have got into financial difficulties and missed payments in the past, defaulted on a loan or hire purchase agreement or had debt recovery proceedings against them.

Bank – While banks have many different functions, their main activity is to act as a payment agent for customers to borrow, and sometimes, lend money. Most of us know banks as a place to look after our money and offer us useful financial services.

Bank of England – The BOE is responsible for setting interest rates, issuing bank notes and working towards maintaining a stable financial system in the UK.

Bankruptcy – This is when someone’s debt problems get so serious, they are unable to pay their existing debts and bills. When this happens, it’s possible to apply to a court to be made bankrupt – which means that any assets you have such as savings will be used to pay off your debts. Normally after one year a person will be discharged from bankruptcy, but it will still have a negative impact on their credit rating and may stop them getting credit in the future.

Base Rate/Bank Rate – This is the interest rate set by the Bank of England for lending money to other banks. The biggest affect it has on normal customers of a bank is that it is used to work out the price of loans. Lenders such as banks will consider the base rate, then either add or subtract a percentage to come to a figure they are comfortable charging the customer. This percentage is influenced by how risky the individual or type of loan is.

Budget Planner – A breakdown of your finances, organised by incomings and outgoings to help you manage your finances.

C

Car LoanCar loans are personal loans that are used to fund the purchase of a new or second hand car.

Consumer Credit Act – This is the law that governs most personal loans and other credit products such as credit cards.

County Court Judgments (CCJs) - If someone can’t pay their debts they might face a County Court Judgment (CCJ). They will then normally have to pay the full amount owed within a month – and if this doesn’t happen, they will be registered with the Register of County Court Judgments and recorded by Credit Reference Agencies on their credit file.

Credit - The term used to describe the lending of money from a financial institution to a individual or company.

Credit File - This file consists of details of your current and past financial activities and is held on a database by three Credit Reference Agencies: Equifax, Experian and Callcredit. Credit files are used by lenders in the assessment of applications and ongoing management for credit products.

Credit History – This is a record of a person’s credit – such as loans and credit cards – and a history of how they were repaid.

Credit Reference Agency – This agency collects and maintains details of peoples' credit records and activities such as loan and credit card applications, late payments, defaults and County Court Judgements as well as good payment records. These details are then provided to financial companies, who use them as part of their credit scoring process to decide whether or not to lend money to people. There are three main UK Credit Reference Agencies: Experian, Equifax and Callcredit.

Credit Search – A check that a lender makes with Credit Reference Agencies to find out about a person’s borrowing and payment habits.

Credit Scoring - Credit scoring is the assessment of a loan application by a lender and is used to make a decision whether to lend or not. Lenders use information from a variety of sources in the credit scoring process, including the details on the application, data from a Credit Reference Agency or from information already held by the lender for other products held with them.

D

Data Protection Act - The Data Protection Act means that all companies that handle personal information have to comply with a number of important principles surrounding privacy and disclosure of information. The Act also allows customers to find out what personal information is held about them and sets out rules to make sure that this information is handled properly.

Debt Consolidation Loan Debt consolidation loans can be used to bring together a range of existing borrowings – such as, store cards, overdrafts and credit cards – into a single loan. This gives customers the convenience of just one monthly repayment.

Defaults – This is when a person fails to make their loan repayments and is issued with a default notice. Defaults will be recorded on their credit file and may affect their credit score in the future.

Dependent – A person who depends on another for financial support for the basic necessities of life. A dependent is usually a child or a spouse.

Direct Debit - Direct Debit is a safe and quick way to make your loan repayments. The repayment amount goes out of your bank account automatically on the same date every month until the loan is repaid.

Draft agreement - A copy of a Loan agreement which is an arrangement between the bank and the consumer which outlines the terms of the Loan. The consumer must agree and sign this document before receiving credit.

E

Early Settlement – This is when you repay your loan early before the end of the loan term. When you take out your loan, the amount you agree to repay includes interest that is charged to the end of the loan term (see loan term). If you make an early settlement, you might be entitled to a rebate, which means you wouldn’t have to pay all of the interest.

You can repay your loan in full or part at any time during the repayment period and we'll reduce the charge for credit you've agreed to pay us.

If you pay off your loan in full before the end of the agreed term, you may be charged up to 58 days' interest (The early settlement adjustment does not apply to the Flexible Loan).

Early settlement adjustment – If you make an early settlement we may charge up to 58 days' interest. The early settlement adjustment does not apply to the Flexible Loan.

Existing Customers - You are classed as an existing customer if you have a Bank of Scotland or Halifax Current Account (excluding the Easycash product), a credit card, an unsecured personal loan, a mortgage, or a savings product with us. Only existing customers can apply for an unsecured personal loan.

F

Fixed Rate – This means the interest rate you pay on a loan, credit card or mortgage is fixed for a certain period of time. Most Bank of Scotland loans have rates fixed for the entire life of the loan. This means you know exactly what your repayments will be for the term of your loan.

G

Good Credit Rating – A credit rating is based on the assessment of an individual's risk by a financial institution and is based on a variety of factors, including repayment history for existing financial products. If you have a good credit rating lenders will be more likely to offer you a loan at a lower rate (APR).

Gross Income – Your income before any deductions have been made such as tax and National Insurance. Gross income is usually the figure people quote when stating their salary.

H

Home Improvement Loan – This is an unsecured personal loan designed specifically to be used for updating your property and could potentially add value to your home.

I

Individual Voluntary Arrangement (IVA) – When someone is faced with debts they can’t pay, an IVA is an alternative, and a less serious, option to bankruptcy. It involves making a legally binding repayment at an agreed monthly amount that the person can afford. As long as they stick to the repayment schedule then bankruptcy proceedings can be avoided.

Interest Rate – This is the interest that’s charged on a loan – worked out as a percentage. (See also APR)

J

Joint Applicants - This is an application made by two people, typically a couple – who will have what’s know as ‘joint and several liability’ for the loan. This means they are both responsible for paying all the loan off – either together or individually. Applying jointly for a loan can sometimes strengthen the application.

L

Late Payments – A late payment is when someone falls behind with a loan repayment. If a payment is late, we charge a late payment charge (around £25) and this will be registered with a Credit Reference Agency, which could affect your credit rating in the future.

Lender – This is the company who agrees to a loan or another credit product such as a mortgage or a credit card.

Loan Agreement - Your loan agreement is the formal contract, which outlines the terms of your loan – (the length of your loan, the amount you have borrowed, the APR, the amount and date of each monthly repayment) and is confirmation that you agree to its terms and conditions.

Loan Calculator - A loan calculator can help work out what your repayments may be for a specified loan amount and repayment term. It will also tell you what the APR may be and can help you decide how long you would want the loan period to be and how much you could afford to borrow.

Loan Insurance – This is optional insurance which you can take out to cover the cost of your loan repayments should you have a change in circumstances. Loan term – This is the length of time over which you agree to repay the loan. So if you take a loan with a term of two years – if you make the contractual repayments on time, at the end of that period, the loan and any interest is completely paid off.

M

Monthly Repayment – This is the amount you agree to pay back each month including the initial loan amount plus interest. The monthly loan repayments will come out of your bank account each month by Direct Debit.

O

Overpayments - These are where you pay more than your required monthly repayment. If you inform us in advance of making an overpayment we will apply this to your loan and this will reduce the Total Amount of Interest you pay over the term of your loan and may reduce your loan term. Any overpayment without notice will only change the period over which you repay the loan and will not affect the rate of interest payable or the total amount repayable.

P

Personal Loan – This means money is borrowed by an individual rather than by a business. If you apply for a personal loan, the amount you’re offered will depend on your income, existing debt, and credit history. A personal loan can be used for almost any purpose (home improvement,car,debt consolidation, holiday etc).

Q

Quote – Details of the monthly repayments and the total amount to be repaid for a specific loan.

R

Repayments – This is the monthly amount you agree to repay when you take out the loan. Once the loan has been completely repaid, you will no longer need to make any repayments.

Representative APR – The Representative APR is most helpful when comparing one loan against another – to see which is the better value. It is calculated by looking at the rate 51% of customers are expected to receive when applying in response to a particular advertisement.

Right of Set Off – If your loan agreement includes a right to set off, it means that if you don’t make payments when you’re supposed to, that money could be taken from other accounts you hold with us that are in credit, including joint accounts, providing the conditions allow.

S

Secured Loan – A secured loan is when you ‘secure’ the money borrowed against the value of your property – which is then used as a guarantee that the loan will be repaid. If you cannot repay your loan then the lender can get a court order to sell your home so they can recover the money they lent you.

Settlement Fee – The fee charged, if any for repaying your loan early.

Settlement Figure – This is the figure provided to you if you want to pay off your loan early – before the end of the loan term.

Single Applicant – This is when an application is made by one person who will be solely responsible for repaying all of the loan.

T

Term – This is the length of time over which you agree to repay the loan. See also ‘Loan Term’.

Total Amount Payable – This is the total amount you will have to repay on a loan and is based on the amount of the loan, the length of time you are repaying it (otherwise known as the term) and rate of interest on the loan.

U

Unsecured Loan – An unsecured loan is when a person doesn’t have to use their home to ‘secure’ the money they are lent. This means that if they defaulted on the loan, their home would not be under threat.

V

Variable Rate – This is when the interest rate you are charged goes up or down depending on the interest rates. This will mean your monthly interest payments could change accordingly. All our loans are fixed rate.