Do you know your APRs from your CRAs? If you are confused by certain financial abbreviations or expressions, you are not alone.
Shawbrook Bank found that only a quarter (25%) of people know that APR stands for “annual percentage rate,” and less than a third (31%) understand what an unsecured loan is.
To help people hone their financial jargon skills, Paul Went, Managing Director of Consumer Affairs at Shawbrook Bank, provided a simple guide…
1. APR (annual percentage rate)
When you borrow money from a lender, you agree to make repayments over an agreed period. The APR is the annual cost of taking out the loan, expressed as a percentage.
You can use it to compare products like loans and credit cards and determine which deal is best for you.
2. Fixed and variable rates
Fixed rates will stay the same, maybe for a while, but variable rates could go up or down. While it is a loan or a savings product that you take out, check if the rate is fixed or variable.
3. Credit check
A credit check or search occurs when a personal loan provider or credit card company contacts one or more of the major credit reference agencies (CRAs) for details about your credit history. This happens after you apply for credit or other financial products that require a credit check.
It helps providers understand your financial behavior. They will use this information and other checks to decide if you qualify for the credit you are applying for. Missed payments, too frequent credit applications, and even not being registered to vote can affect the way businesses view you.
In some situations, lenders may perform “soft” credit checks to indicate your potential eligibility for a product. They will not affect your credit score, as they are generally not visible to businesses, unlike “hard” checks. It gives you the freedom to shop.
It is the process of combining multiple debts, such as those on credit cards, overdrafts, or personal loans, into one. You could potentially be able to transfer all of your debts at a lower interest rate and this could also make it easier to track payments which would make budgeting easier.
Shawbrook has an “Ultimate Guide to Debt Consolidation” on their website (shawbrook.co.uk).
5. Unsecured loan
This is a form of credit that is not secured by the borrower’s property or any other asset. This means that you don’t need to be a homeowner to apply.