topic 6

Question 1

APR

Answer 1

Annual percentage rate – the total cost of borrowing over one year

Question 2

ATM

Answer 2

automated teller machine

Question 3

bank rate

Answer 3

The interest rate that the Bank of England uses when it lends money to other banks. Financial services providers take account of the Bank rate when they decide how to set interest rates on their own products.

Question 4

basic bank account

Answer 4

a current account that allows people to store their money as an electronic balance and make payments by direct debit, standing order, prepaid cash card or by withdrawing cash. There is no debit card, cheque book or overdraft facility on this type of account

Question 5

balance transfer

Answer 5

Moving the balance on a card from one card provider to another

Question 6

CVV

Answer 6

Card verification value - Three numbers on the back of a credit or debit card. This is a security measure designed to prevent fraudulent use of the card by someone other than the cardholder

Question 7

cashback card

Answer 7

A type of card that gives back to the cardholder a percentage of the value of transactions made with the card, in the form of cash.

Question 8

charge card

Answer 8

A credit card that must be repaid in full every month

Question 9

cheque

Answer 9

a written instruction to the provider to pay a specified amount to a specified person or organisation

Question 10

consumer credit

Answer 10

This is another term used for borrowing

Question 11

cost of borrowing

Answer 11

Also called ‘cost of credit’. The total amount that the borrower will be charged including interest and any fees. For personal loans and credit card borrowing the cost over a 12- month period must be quoted

Question 12

credit agreement

Answer 12

The formal agreement between a provider and a borrower setting out the amount borrowed, the interest charged, the arrangements for repayment and any other terms and conditions.

Question 13

credit card

Answer 13

A card that allows the holder to make purchases face to face, online or over the phone, and to withdraw cash from an ATM. Unlike a debit card, where the money is taken from the holder’s own account, transactions are paid by the card provider. The card holder repays the amount owed to the provider either in one payment or in instalments. The provider charges interest on cash withdrawals from the time the withdrawal is made and on purchases after a certain period.

Question 14

credit history

Answer 14

A record of money borrowed and repaid by an individual. These records are held by credit reference agencies and providers will check the individual’s credit history when a prospective customer applies for a borrowing product.

Question 15

credit union

Answer 15

A mutual organisation that provides a range of financial products to members. Members of a credit union must share a common bond

Question 16

current account

Answer 16

a bank or building society account where people can store their money in the form of an electronic balance and withdraw it to make payments

Question 17

debit card

Answer 17

a card that can be used to withdraw cash, to make face-to-face transactions in, and to make payments online or over the phone

Question 18

direct credit

Answer 18

an electronic payment into an account

Question 19

direct debit

Answer 19

an electronic payment out of an account

Question 20

EAR

Answer 20

Equivalent annual rate – the cost of borrowing using an overdraft.

Question 21

interest

Answer 21

money either paid to an account holder by the provider or charged to the account holder by the provider. Interest is paid on savings accounts and some current accounts and charged on borrowing. Each provider decides the rate of interest it will pay or charge, depending on the type of account and, in some cases, the credit history of the individual account holder

Question 22

interest rate

Answer 22

The amount, expressed as percentage, that a financial services provider charges a borrower when it lends money, or pays to a saver.

Question 23

mortgage

Answer 23

a loan taken out to pay for a property

Question 24

overdraft

Answer 24

a facility that allows an account holder to withdraw more money than they actually have in their account

Question 25

payday loan

Answer 25

A loan designed to be taken out for only a very short period, which charges a very high APR.

Question 26

payment allocation

Answer 26

The order in which a card provider uses money paid into an account to pay off the amount outstanding

Question 27

personal loan

Answer 27

A product that allows someone to borrow a fixed amount over a fixed period at a fixed rate of interest

Question 28

standing order

Answer 28

an electronic payment out of an account used to make regular payments of the same amount

Question 29

store card

Answer 29

A card issued by a retailer that the holder can use to make purchases within that store or group of stores. As with a credit card, the amount owed is paid off at a later date, either in one payment or in instalments, and interest is charged on the amount owed.