week 6 : Borrowing products

Question 1

APR

Answer 1

annual percentage rate - the total cost of borrowing over 1 year, including the interest charged and any fees

Question 2

ATM

Answer 2

automated teller machine, eg a cash machine

Question 3

Basic bank account

Answer 3

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

Question 4

bank rate

Answer 4

the interest rate that the BofE 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 5

balance transfer

Answer 5

moving the balance(total amount owed) on a card from one card provider to another

Question 6

CVV

Answer 6

Card vericaion value - 3 numbers on the back of a credit or debit card. these are a security measure designed to prevent fraudulent use of the car by someone other than the card holder

Question 7

cashback card

Answer 7

a type of card that gives back to the card holder a percentage of the value of the transaction 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 (eg the bank or building society) to pay a specified amount to a specified person or organisation. (The law relating to cheques is quite complex so this is a simplified explanation for the purpose of these study materials.)

Question 10

consumer credit

Answer 10

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

Question 11

cost of borrowing

Answer 11

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)

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 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.

Question 16

current account

Answer 16

a bank or building society 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 transacitons, and to make payments online or over the phone

Question 18

direct credit

Answer 18

an electronic payment into an account eg, a salary or benefits payment

Question 19

direct debit

Answer 19

an electronic payment out of an account. the amount and requency can vary

Question 20

EAR

Answer 20

equivalent annual rate - the cost of borrowing using an overdraft. the EAR includes only the interest rate as fees are listed seperately

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, 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.

Question 22

interest rate

Answer 22

the amount, expressed as a percentage, that a financial service provider pays to a saver, or charges a borrower when it lends the money

Question 23

mortgage

Answer 23

a loan taken out to secure a property usually over a long term such as 25 years

Question 24

overdraft

Answer 24

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

Question 25

payday loan

Answer 25

a loan designed to take out for only a very short period, which charged very high APR

Question 26

payment allocation

Answer 26

the order in which a card provider uses money pad into an account to pay of 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 amount of interest

Question 28

standing order

Answer 28

an electronic payment out of an account.standing orders are used to make regular payments of the same amoutn

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 oweing is paid of at a later date, either in one payment or in installments, and interest is charged on the amount owed