Topic 6: Borrowing products Flashcards
APR
Annual percentage rate – the total cost of borrowing over one year, including the interest charged and any fees.
ATM
Automated teller machine, also known as a cash machine.
Bank rate
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.
Balance transfer
Moving the balance (total amount owed) on a card from one card provider to another
Basic bank account
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.
Cashback card
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.
Card verification value (CVV)
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.
Charge card
A credit card that must be repaid in full every month.
Cheque
A written instruction to the provider (eg the bank or building society) to pay a specified amount to a specified person or
organisation.
Consumer credit
This is another term used for borrowing. It is important to understand that ‘taking credit’ or ‘buying on credit’ refers to borrowing. However, a credit into a bank account means paying money in.
Cost of borrowing
Also called ‘cost of credit’. This is 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 – the annual percentage rate (APR)
Credit agreement
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.
Credit card
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.
Credit history
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.
Credit union
A mutual organisation (that is, owned by its members) that provides a range of financial products to members, eg savings
accounts and personal loans. Members of a credit union must share a common bond, eg all work for the same employer or all
work in the same district.
Current account
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
Debit card
A card that can be used to withdraw cash, to make face-to-face transactions in, for example, shops, and to make payments online or over the phone.
Direct credit
An electronic payment into an account, for example a salary or benefit payment.
Direct debit
An electronic payment out of an account. The amount and frequency of a direct debit payment can vary.
EAR
Equivalent annual rate – the cost of borrowing using an overdraft
Interest
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, eg an overdraft. 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.
Interest rate
The amount, expressed as a percentage, that a financial services provider pays to a saver, or charges a borrower when it lends money.
Mortgage
A loan taken out to pay for a property, usually over a long term such as 25 years.
Overdraft
A facility that allows an account holder to withdraw more money than they actually have in their account.
Payday loan
A loan designed to be taken out for only a very short period, which charges a very high APR
Payment allocation
The order in which a card provider uses money paid into an account to pay off the amount outstanding.
Personal loan
A product that allows someone to borrow a fixed amount over a fixed period at a fixed rate of interest
Standing order
An electronic payment out of an account. Standing orders are used to make regular payments of the same amount.
Store card
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 owing is paid off at a later date, either in one payment or in instalments, and interest is charged on the
amount owed.
