Definitions

Adverse Credit

Borrowed funds that have not been settled or repaid within the agreed time limit.

Application

Details that a borrower provides before a decision to lend can be processed and approved.

APR

The APR or Annual Percentage Rate is the amount of interest charged over a 12 month period. It may also include set up fees and administration costs.

Arrears

Any outstanding funds that have not been paid on time. These include missed payments.

Assets

Valued items that a borrower may use as security when applying for a loan.

Bad Credit

This is a term used to describe those with less than desirable borrowing histories. If you have been declared bankrupt in the past, or you have repeatedly failed to make repayments on time then you will be classed as a bad credit risk.

Bankruptcy

If a person is unable to make repayments because they have insufficient funds or assets to reimburse the lender, they may be declared insolvent. There are two types of bankruptcy – which are voluntary, when a person declares their own insolvency, and involuntary, when a creditor has petitioned for a borrower to be declared insolvent.

Bridging

When you need to bridge the gap between transactions. The most likely scenario to require a bridging loan is when you are selling one property and buying another. A bridging loan calculator can be a useful tool for working out the repayment costs and affordability of such finance before you apply.

Collateral

Equity or security in the form of your assets.

Commercial Loan / Business Loan

A type of finance used for commercial / business reasons, as opposed to a residential loan for homeowners.

Commission

Any fees charged by a broker in exchange for arranging finance through a lender on a borrower’s behalf.

Consolidation / Debt Consolidation

Any finance package used to merge several smaller loans – typically to reduce monthly outgoings by means of lower interest rates.

Credit Rating

An overall borrowing score that is attributed to a borrower based on past loan repayments and responsibility towards personal debt.

Creditor

Any third party that lends money to a business or individual.

Debt

Money owed to a creditor or financial institute.

Debt Consolidation

The restructuring of existing debts by means of a new payment plan that is typically a much lower amount when compared to previous monthly outgoings. There are numerous types of debt consolidation available including secured loans, repayment plans, remortgaging, IVAs and other alternatives such as filing for bankruptcy.

Debt Management

A repayment plan, or DMP (Debt Management Plan), offers a practical means of making a number of unsecured debts more affordable. DMPs are typically negotiated by a third party who will approach creditors on your behalf in order to reduce the cost of your monthly repayments.

Debtor

Someone who owes money to a creditor.

Defaults

Failure to pay a debt, such as a loan or mortgage, on time results in the borrower “defaulting”.

Equity

Any money tied in with the value of a property or commercial enterprise, once any outstanding finance secured on such collateral is taken into account.

Fixed Charge

A legal charge over a given asset. A debtor is unable to sell a property without permission from any creditors who have lent money using that property as security.

Fixed Interest Rate

An arranged level of interest that is not subject to fluctuation over a fixed period of time. Interest may be fixed for a limited time only, or for the entire duration of a loan.

IFA

An Independent Financial Advisor

IP

An IP, or Insolvency Practitioner, is a third party that specializes in insolvency issues. Accountants and solicitors are two such examples.

IVA

An IVA is an Individual Voluntary Arrangement. IVAs are a government-backed incentive, designed to help borrowers clear their debts by repaying a partial amount of the outstanding balance instead of the full amount. IVAs are the most practical alternative to bankruptcy when financial obligations are proving impossible to meet.

Insolvent

Anyone who is unable to satisfy their existing borrowing commitments is considered insolvent.

Insolvency

The act of becoming insolvent or bankrupt.

Lender

The loan or mortgage provider you are borrowing from.

Liquidate

The conversion of assets into cash.

Mortgage

A secured loan taken out to finance the purchase of a residential property, with the property itself used as security for the loan.

Negative Equity

If the amount owed is worth more than the property itself then this is considered negative equity.

Nominee

An Insolvency Practitioner acting on behalf of a borrower who is struggling to meet their financial commitments.

Realise

To sell off an asset in order to raise funds. For example, a property may be realised in order to pay off a number of debts.

Recuperate

To recover monies owed.

Remortgage

A remortgage is a secondary mortgage that replaces the previous loan, often releasing some or all of the equity tied in with the original asset. The new loan is used to pay off the existing debt and may also provide additional finances which can be used for other purposes such as home improvements or debt consolidation. Remortgaging is also a useful method of transferring a debt to a new lender offering lower interest rates.

Release

Whenever an Insolvency Practitioner or Official Receiver is no longer required as an administrator or liquidator, they are typically discharged or “released” from the role.

Secured Creditor

A creditor who has lent you money whilst using your home or another asset as security.

Security

Typically a property such as a residential home, security can be anything of value that may be sold by the creditor if you are unwilling or unable to make repayments on a debt.

Settlement Figure

The cash sum required to repay an outstanding loan balance in full.

Tenant

Anyone living in a property that they do not own who pays rent to a landlord or housing association.

Unsecured Creditor

A lender who provides finance without the prerequisite of security.

Unsecured Loan

A type of loan does not require a property or any other asset as security. This may because the borrower has a good financial position or credit rating.