Financial jargon glossary
40 lending terms explained

The total cost of credit expressed as a yearly percentage, including interest and mandatory fees. Standardised by FCA rules so you can compare products fairly. Always annualised — so a short-term loan will show a high APR even if the actual cost is modest.

The APR offered to at least 51% of approved applicants. Up to 49% of borrowers may receive a higher rate. Always check your personal offer before signing.

Similar to APR but does not include fees — it shows only the interest compounding effect. Commonly quoted on overdrafts and revolving credit. Useful for comparing interest costs directly.

The one number that tells you exactly how much you will pay back in total: loan amount + all interest + all fees. This is the figure to compare when choosing between borrowing options.

The basic annual interest rate before compounding is factored in. Lower than the APR. Quoted on mortgages and some personal loans but less useful for comparison than APR.

Some lenders (particularly HCSTC providers) cap their charges at a daily rate. The FCA caps this at 0.8% per day of the outstanding balance for high-cost short-term credit.

A fee applied when you miss a repayment. The FCA caps default fees on HCSTC loans at £15 per missed payment.

For HCSTC loans, the FCA rules mean you can never repay more than 100% of the amount you originally borrowed in interest and fees — even if you default or roll over the loan.

A court order issued in England, Wales, or Northern Ireland when a lender sues for an unpaid debt and wins. Stays on your credit file for 6 years. If you pay in full within one month, it can be set aside and removed. In Scotland the equivalent is a Sheriff Court Decree.

Recorded on your credit file when a lender closes your account due to missed payments (typically after 3–6 months of arrears). Stays for 6 years from the default date, regardless of whether you repay.

The amount you owe but have not paid by the due date. Being in arrears is different from being in default — arrears is an earlier stage and can often be resolved by contacting your lender.

An informal arrangement, usually run by a free debt charity (StepChange, CAB, National Debtline), where you make a single monthly payment that is distributed across your creditors. Not legally binding; creditors can withdraw at any time but rarely do.

A formal, legally binding insolvency arrangement available in England, Wales, and Northern Ireland. Typically 5–6 years; remaining unsecured debt is written off at the end. Requires an insolvency practitioner and agreement from creditors holding 75%+ of the debt (by value).

Scotland's equivalent of an IVA. Administered by a trustee. Once protected (creditors holding the majority agree), dissenting creditors are bound by it.

A formal legal status for insolvent individuals. In England/Wales you apply to the Insolvency Service or are petitioned by a creditor. Lasts 12 months before discharge; restrictions and asset implications continue longer. The Scottish equivalent is sequestration.

Under UK GDPR you can ask any lender, bank, or credit reference agency for all data they hold about you — free of charge, responded to within one calendar month. Useful for checking what is recorded and correcting errors.

The UK regulator for consumer credit, banking, and insurance. Most lenders offering personal loans in the UK are authorised by the FCA; some operate legally without FCA authorisation where their activities fall outside the regulated consumer credit perimeter. You can check a firm's authorisation status on the FCA register at register.fca.org.uk.

The primary statute governing consumer credit in the UK. Gives borrowers the right to a 14-day cooling-off period (right to withdraw), the right to early settlement with a statutory rebate, and protections against unfair credit relationships.

FCA regulatory category for loans repayable within 12 months (or on demand) with an APR of 100% or more. Includes most payday-style and short-term personal loans. Subject to stricter rules: the 0.8% daily rate cap, £15 default fee cap, and 100% total cost cap.

The FCA handbook chapter (CONC) that sets out specific rules for consumer credit firms: affordability assessments, responsible lending, arrears handling, and advertising standards.

The UK's statutory compensation scheme for failed financial firms. Consumer credit lenders are not covered by FSCS in the same way as banks, but deposits and e-money held with regulated firms have separate protections.

UK data protection regulator. Oversees how lenders, credit reference agencies, and debt purchasers must handle personal data under UK GDPR and the Data Protection Act 2018.

Companies that collect and sell consumer credit data. The three main UK CRAs are Equifax, Experian, and TransUnion. Each holds slightly different data; checking all three gives the most complete picture.

Under s75 of the CCA, if you pay for goods or services costing £100–£30,000 by credit card, the card issuer is jointly liable with the retailer if something goes wrong. Does not apply to debit cards or most personal loan disbursements.

Your total monthly debt repayments divided by your gross monthly income, expressed as a percentage. Lenders use this to gauge whether you can comfortably afford an additional repayment. A DTI above 40–45% often triggers a more cautious underwriting decision.

Required by FCA CONC rules. The lender must assess your ability to repay without causing you financial hardship, taking into account income, expenditure, and existing credit commitments. Failing to do this is a regulatory breach.

A secure, FCA-regulated way for you to share your bank transaction data with a lender (or any other authorised firm) via an API. Allows real-time income and expenditure verification — often faster and more accurate than payslips alone.

A credit inquiry that is visible to other lenders on your credit file and may marginally affect your credit score. Typically done when you formally apply for credit.

A credit check that is not visible to other lenders and does not affect your credit score. Used for eligibility checks and rate quotes. Most UK lenders now offer a soft search before you formally apply.

When a credit file contains too little data for a lender to make a reliable assessment. Common for young adults, recent immigrants, or people who have avoided credit. Not the same as bad credit.

The process of confirming your stated income — via payslips, bank statements, HMRC SA302 (self-employed), or open banking data.

Similar to DTI but used in some underwriting models to measure monthly debt payments as a proportion of net (take-home) income rather than gross income.

The sum of money you actually receive (or the outstanding balance you owe). Interest is calculated on the principal. Not to be confused with total repayable, which adds interest and fees on top.

The agreed duration of the loan, usually expressed in months. A 3-month term means you will make repayments over three calendar months.

Each scheduled repayment. For most short-term personal loans this is a fixed amount on the same date each month, covering both interest and a portion of the principal.

An instruction you give a lender allowing them to take future payments from your debit card. Unlike a direct debit, the lender controls the payment. You can cancel a CPA at any time by contacting your bank — the bank must comply.

Under the CCA and EU-derived Consumer Credit Directive (retained in UK law), you have 14 calendar days from the later of receiving your agreement or receiving the funds to withdraw from a credit agreement with no penalty. You must repay the principal plus any interest that has accrued.

Paying off your loan before the end of the term. Lenders must provide an early settlement figure within 7 working days of a request. You receive a statutory rebate on future interest (calculated under the actuarial method).

Extending a loan past its original end date. FCA rules limit HCSTC rollovers to a maximum of two, and only if the lender believes it is in the customer's interest. Rollovers add further interest.

The Standard European Consumer Credit Information form (retained in UK law). Lenders must give you this before you sign, setting out the APR, total repayable, and your rights. Read it before proceeding.