Glossary. taxcalcr. acorah software. driven by

Transcription

1 Glossary taxcalcr driven by a acorah software

2 Contents Access Additional Cardholder AER Affinity Cards American Express Annual Fee Applied (or Nominal) Interest Rate APR Arrears ATM Balance (in relation to credit cards) Balance Transfer Bankruptcy CAB - Citizens Advice Bureau Card Tart Cash Advance Cash Back Cash Withdrawal Rate CCCS - Consumer Credit Counselling Service CCJ County Court Judgement Chargeback Charge Cards Churners Consolidate Contactless Cards Credit Credit Broker Credit Card Credit Check Credit Crunch Credit Limit Credit Record/History Credit Reference Agency Credit Sale Credit Score/Rating Credit Union Creditor Debit Card Debt Debtor Default Charges Deflation Direct Debit EAR Fraud FSA Financial Services Authority Grace Period HP - Hire purchase Inflation Interest Interest Free Period Interest Rate IVA Individual Voluntary Arrangement Loan - secured Loan unsecured MasterCard Merchant Minimum Payments (DANGER!!) Money Lender MIR - Monthly Interest Rate (BEWARE) National Debtline 1

3 Official Receiver Overdraft Overpayment Pawnbroker Payment Protection Cover Revolving Balance Rewards Settlement full and final Skimming Smart Card Standing Order Stoozing Store Card Underwriting Visa 2

4 A Access The Access credit card was issued by RBS, NatWest, Lloyds and Midland in 1972 and was discontinued when it was sold to MasterCard in the 1980s. Additional Cardholder It is often possible to have more than one credit card for any particular account. All purchases will be shown on one statement and may be itemised. It is the primary account holder s responsibility to make necessary payments. AER AER stands for Annual Equivalent Rate and is applied to savings and current accounts which are in credit. It will indicate how much interest you will earn over the course of the year. Like APR, it is useful to know the AER on any savings account so that you can compare different accounts like-for-like and get the most out of your savings. You should also check whether the AER is gross or net, as the two are different. The gross AER is the rate of interest paid before deducting income tax, whereas net AER is the rate of interest paid after allowing for the deduction of 20% tax for basic rate taxpayers. Affinity Cards An affinity card is a normal credit card, but is connected to a particular business or organisation normally a charity, political party or other institution. When you use the card, a certain percentage of your spend goes towards that organisation. They will normally be a MasterCard or Visa and will be accepted worldwide. American Express American Express is an international corporation whose services include travel and financial products. The company is best known for the American Express charge card which enables the holder to obtain goods and services without the need to pay cash. An annual fee is charged instead of interest and monthly statements must be settled in full. Annual Fee Some credit card providers charge an annual fee and some don t. Many consumers make the mistake of assuming an annual fee is a rip-off, but you should take every aspect into account the fee might significantly lower your APR. 3

5 Applied (or Nominal) Interest Rate This is the rate of interest that the lender uses to calculate the amount owed on your monthly balance. It is not the same as the APR, which is a rate that is calculated as if you owed the money for an entire year. APR APR stands for the Annual Percentage Rate. It is the rate of interest that a lender will charge per year for a loan, mortgage, hire purchase agreement, credit or store card. All lenders are required by law to tell you what their APR is before you sign an agreement and it will vary from lender to lender. Normally, the lower the APR, the better the deal so it s worth shopping around if you re thinking of having a credit or store card. There are often different APR rates for purchases, cash withdrawals, balance transfers, cheque transactions and money transfers and these can vary dramatically. You should watch out for introductory rates of interest and make sure there are no additional fees and charges involved as this can really hike up the cost of lending. You should also be aware that some lenders advertise the monthly interest rate, which could make the card or loan seem very cheap always find out what the APR% is as this is the figure that will help you to compare to other lenders. Arrears If you fall behind with payments and, for example, your rent or mortgage or debt is not repaid when it should be, the money owed is called arrears. Rent and mortgage arrears are priority debts, which means the consequences of not dealing with them are serious and there could be a risk of eviction. ATM ATM stands for Automatic Teller Machine, more commonly known as a cash machine. They are primarily used to withdraw cash from bank accounts or credit cards although some ATMs offer other services such as mobile phone top ups and means to deposit cash into bank accounts. 4

6 B Balance (in relation to credit cards) This is your amount outstanding on your credit card and is the total of all your purchases, cash advances, balance transfers, fees and interest charged, less any payments made. Balance Transfer If you have an outstanding balance on your existing credit card on which you are paying interest, it may be worthwhile comparing the cost of your current card with those available in the market. You can easily do this by entering a dummy card in the Enter Cards screen in this program and see the difference against your other cards. If you find a card that makes your debt less expensive you could take out the new credit card and arrange for the outstanding balance on your old card to be transferred to it. Beware though, there is normally a fee to transfer a balance. Make sure it doesn t outweigh the savings in interest. Bankruptcy Bankruptcy is a serious matter it is a legal status that usually lasts for a year. However, information about a bankruptcy stays on a credit record for at least six years and a Bankruptcy Restrictions Order can remain there for as long as 15 years. Lenders see these records and mark you down when scoring your credit application because they fear you may not honour your obligations to them if you have failed with others in the past. Declaring yourself bankrupt can be a way of clearing debts you can t pay, but you ll have to give up possessions of value and the interest in your home. You don t have to become bankrupt just because you re in debt - you can try to make arrangements with your creditors (people you owe) instead. A court can declare you bankrupt by issuing a bankruptcy order after it has been presented with a bankruptcy petition by your creditor. When you re bankrupt, your property, possessions and excess income are used to pay off your creditors. At the end of the bankruptcy period, most debts are discharged (cancelled). If you do become bankrupt, you will have certain obligations: You must give the Official Receiver details of your finances, assets and creditors You must look after your assets and hand them over to the Official Receiver with the relevant paperwork, such as bank statements and insurance policies You must tell your trustee (either the Official Receiver or insolvency practitioner) about any new assets or income during your bankruptcy You must stop using credit cards and bank or building society accounts 5

7 You must not obtain credit over 500 without telling the creditor that you re bankrupt You must not make payments direct to your creditors (there are exceptions to this, such as mortgage arrears and outstanding child support payments) You may also have to go to court and explain why you re in debt. If you re thinking about declaring yourself bankrupt or you re being threatened with bankruptcy, it s important to seek independent advice. Several agencies offer free help, including the Citizens Advice Bureau, National Debtline and the Consumer Credit Counselling Service (CCCS). 6

8 C CAB - Citizens Advice Bureau There are over 400 Citizens Advice Bureaus in England and Wales: independent registered charities who provide free information and advice on legal, money and other problems. You can find your local CAB in the phone book or on their website - Card Tart Credit card tarts are people who don t remain loyal to their card provider and move their debt from one 0% card to another in order to secure the minimum possible cost for their debts. It is a good way of obtaining cheap credit, but requires good management of your card, a good credit score and regular repayments made, even if it s only the minimum amount. Once the 0% period is coming to an end and the standard APR is due to take effect, a card tart will move any remaining debt to another 0% deal and make a balance transfer to the new card in order to gain an additional 0% period. You should always check the transfer fee before moving any debt as many card companies charge balance transfer fees of up to 3% of the debt shifted, so you need to question whether it s worth the cost of moving. Whilst it is good for short-term needs, card tarting could have an adverse effect on your credit scoring if done too often. Agencies monitor the number of cards you have and obtain reports from credit card issuers on how you deal with them. You may be refused credit if a lender decides that you have too much outstanding debt with other lenders. Cash Advance A credit card cash advance is cash which can be accessed with a credit card. The usual way to obtain a cash advance is by swiping the card at an ATM, entering a personal identity number (PIN) and receiving cash in exchange. There is normally a fee for withdrawing cash on a credit card and interest is usually charged at a higher rate than that of buying goods on the card. On most credit cards you can obtain cash whilst abroad and receive the currency of the country you re visiting. The amount you withdraw is converted to British Sterling and included on your statement, however there is usually an additional fee for the cost of conversion and very often the exchange rate is not as good as obtaining currency to take with you. Cash Back Cash back credit cards give back a percentage of the total money charged to your card each year. If you use your card a lot and keep up with your repayments, this can be quite beneficial and is worth shopping around for. 7

9 Cash Withdrawal Rate Credit card providers often charge a different rate of interest, normally much higher, for withdrawing cash as opposed to making purchases on the card. There is also usually a minimum fee for having cash on a credit card which could work out to be false economy if you only want a small sum of money. CCCS - Consumer Credit Counselling Service As well as CAB, the CCCS also has a helpline, and specialise in providing free, independent and impartial advice to people who have debt problems. CCCS is now well established as an important and growing source of money advice and the focus for the repayment ethic. It is the leading debt management charity in the UK. For more information go to the CCCS website CCJ County Court Judgement Someone you owe money to (a creditor ) can take a County Court Claim action against you to claim the money. If you pay the amount outstanding, you can avoid a hearing or judgement. If not, there ll be a simple court hearing in private which you can attend if you wish, or just send the information the court asks for by post. The court doesn t find anyone guilty or innocent. It looks at the facts and decides whether you owe any money, and if so, how you should repay it. After the court hearing, the court may issue an order saying you must repay the debt. This order is called a County Court Judgement, a CCJ and will either be for the amount agreed between you and your creditor or, if you can t agree, a payment set by the court. Unless you pay the full amount of the judgment within one month, your CCJ will be recorded on the Register of County Court Judgments for six years. Organisations such as banks, building societies and loan companies use the registered information to help decide whether to give you credit or loans, like a mortgage. Some companies charge for credit repair services that claim to help you get CCJs taken off the register it is wise to get free, independent advice first before using one of these companies. You can get incorrect information removed yourself by paying 2 to see your credit file and asking for mistakes to be corrected. Remember though, a judgment is only taken off the register if: you paid it in full within one month it s set aside by the court You can search the record for any CCJ registered against you and have it marked satisfied if you ve paid off the debt. 8

10 Chargeback A credit card chargeback is the reversal of a card transaction. It occurs when either the card issuer or the card owner challenges a charge on a credit card account. The credit card company or issuing bank investigates the claim and if the charge is found to be unauthorised, fraudulent, or mistakenly billed, a chargeback will be issued and the cardholder will no longer be responsible for paying. Charge Cards Whilst a Charge Card may look like a credit card and you can use it like one, unlike a credit card, Charge Card accounts must be settled in full each month. Failing to pay normally incurs penalty interest charges which are significantly higher than credit card interest rates. Interest is not charged on the amount but there is normally an annual fee for the card. American Express is a typical example of a Charge Card. Churners A term used by service providers such as credit card companies for those customers who leave in any period to use the services of a rival company. Churners are often tempted by the free gifts that companies offer to attract their business, but they will often move on when the next offer arrives. Like a milk churn, they may go round in circles, and end up back with companies they have already used. Churning can be a good way to maintain the lowest possible rates, especially if the balance is frequently transferred from one credit card to another. However, you should be aware of the pitfalls of constant churning: Every time you apply for a credit card, bank loan or utility, your credit file is checked. Frequent applications will lead other lenders to question why you are applying for so much credit in such a short space of time, and may be reluctant to lend to you, or to provide you with their services. Companies are likely to treat their loyal customers better than those who have only been with them for a short period of time. Long standing customers are particularly likely to benefit from increased credit card limits, as the card issuer knows their payment history. Frequently changing your accounts can be a very time consuming process. You may wish to ask yourself if it is really worth all the hassle of changing card providers for a small saving on an interest rate reduction of a fraction of a percent. Some companies offer you better deals if you have multiple products with them. Leaving your existing service provider without calling them to ask for a better deal may mean that you lose out on an even better offer than the new provider is enticing you with. Free gifts are often worth much less than they appear to be. If you already have a DVD player, how useful is another one? 9

11 Consolidate To consolidate your debt is to take out a single, new loan to pay off several existing debts such as credit cards. This can be a good way of taking control of your finances as you will always have a set monthly repayment amount which will enable you to budget more easily and you will know when you are going to finish paying the debt. You will normally pay a lower rate of interest on a loan than on your credit and store card rates, unless, of course, you have a 0% card. However a consolidation loan may not always be your best option and you need to be careful that you check all the details of the loan to ensure it s not going to cost you more in the long run and take longer to repay. Things to check if you are considering a loan: Make sure there are no extra charges for setting up and repaying the loan Will the interest be added at the start of the loan? If so, you ll be paying interest on that interest, as well as on the amount you borrowed Find out if it is going to be secured against your property your home could be at risk if you can t keep up the payments Be realistic about what you can afford to pay each month sit down and work out your budget: your total income against how much is being spent each month All your eggs will be in one basket - if you get into difficulties, it may be more difficult to come to a new arrangement with a single lender Contactless Cards Contactless is a new feature being introduced on both credit and debit cards in the UK and should make purchases quicker and more convenient for both retailers and consumers. Cards featuring Contactless payment technology can be used for purchases of 10 or less by simply holding the card to a secure reader - without the need to enter a PIN or sign a receipt. Although a Contactless transaction does not require a PIN to be entered, from time-to-time the terminal will ask that the cardholder undertake a full contact chip and PIN transaction. This is designed to deter fraudulent use should the card be lost or stolen; each time a PIN is used it reaffirms that the cardholder is in possession of their card. Credit Credit is borrowing money, usually to buy goods, by means of a credit card, loan, HP agreement, finance agreement or mortgage. Interest usually has to be paid on the borrowing at an agreed rate and there may also be administration costs to pay, which may also incur interest. 10

12 Credit Broker Credit brokers arrange loans from, for example, insurance or finance companies and make a charge for this. If the broker has not arranged a loan within six months, the maximum they can charge you is 5. However, if the agreement would have been a mortgage and the broker is authorised by the FSA, there is no limit on what they can charge you for their services. To find out if a broker is authorised by the FSA, go to the FSA s website at Pages/register Credit Card A credit card can be supplied by banks, finance companies and shops and are used to pay for services and goods, in the same way as you would use a debit card. However, there are some important differences. When you use a debit card, the money comes directly out of your bank account so if the money isn t there, the transaction will be declined. When you use a credit card, you are not spending money from your own bank account, you are borrowing money from your credit card provider: money that you have to pay back and money that you may be charged interest on. The main attraction of credit cards is that they allow you to borrow and can be more flexible than loans. You can choose how much to spend within your credit limit and how much to repay each month subject to a minimum, usually between 2% and 5% of the amount you owe. Of course, if you don t clear the balance, interest is charged. You will get a monthly statement saying how much you owe (including interest) and will be told the minimum amount you must pay that month. You may also have to pay an annual fee. The credit card allows you to spend whenever you want without regard to what s in your bank account so long as you remain within your credit card limit. When used carefully, they provide flexibility and convenience especially if you re away from home and in most cases you can enjoy a credit-free period, typically of up to 56 days before interest is charged to the account. However, if you re looking to borrow money, they are among the most expensive options available with annual percentage rates of interest (APRs) which seemingly bear little relation to the Bank of England base interest rate. Credit card issuers tend to belong to at least one major credit card network, e.g. Visa or MasterCard. Credit Check When you apply for a loan or credit, lenders want to know that you re going to be able to repay any money they lend you and one of the ways they do this is by means of a credit check. To do this they will look up your credit history or record with one of the three main credit reference agencies in the UK: Equifax, Experian and CallCredit. You can t stop lenders checking your credit record, but the law says you can see what s on it. You ll have to pay, but, as at October 2009, credit reference agencies can t charge more than 2 for this. You may also be able to see your file online, but this may cost more. 11

13 The Data Protection Act 1998 gives you the right to have information on your credit file corrected or removed if it s wrong (but not just because you don t like it). The credit reference agencies will tell you how to do this. Some commercial credit repair companies offer to remove information from your file to clean it, however the FSA warns against using them - it s best to get in touch with the credit reference agencies yourself. Credit Crunch A credit crunch, also known as a credit squeeze, finance crunch or credit crisis, is a reduction in the general availability of loans (or credit) or a sudden tightening of the conditions required to obtain a loan from the banks. It is a period of time where major banking and financial institutions experience a shortage of cash and therefore do not have the funds to lend to their customers. As a consequence, the customers do not have the ability to borrow cash, which in turn means that businesses across the country sell far less than they used to. Credit Limit This amount is set by your credit or store card provider and is the most you can borrow on your card at any one time. Your card issuer will have decided on your credit limit based on the information you supplied on your application form and on its credit scoring process. The card issuer will, as a matter of course, have checked out your credit record with a credit reference agency. If you attempt to go over your credit limit you may find your credit card being refused by retailers or, if the spending is allowed, you may be faced with financial penalties from your card issuer. Credit Record/History When you apply for a loan, mortgage or credit/store card, lenders will check your credit record with specialist credit reference agencies that collect information from the courts, other lenders and the electoral roll. The three main credit reference agencies in the UK are Equifax, Experian and Callcredit. If you have had credit problems in the past don t immediately rule out the high street lenders. They claim to take each case individually and in some circumstances would consider someone with a County Court Judgment (CCJ) or if you have ever been declared bankrupt. However, if you are refused credit, lenders don t have to tell you why. It is worth knowing that you could be unaware that you have a CCJ on your credit record, perhaps caused by a bill being unpaid if it was sent to an old address. If you feel there has been an error made in your credit record you can obtain your credit file, ask for an investigation and, if proved correct, have your record altered. 12

14 Beware of so-called credit repair companies though, especially if they try to offer you loans at high rates of interest. Credit Reference Agency A credit reference agency holds files on the borrowing records of nearly every adult in the UK. The information is collated from a variety of sources and may hold details of: people on the electoral register at your address(es) your credit agreements, including details of any late payments & defaults - this can be held for up to six years County Court Judgments and bankruptcy orders against you - these are also be held for six years previous applications for credit people living at the same address as you, such as your family The three main credit reference agencies in the UK are Equifax plc, Experian plc and Callcredit plc. They do no more than supply information to lenders who then use the information as part of their credit scoring. If you d like to have a look at your own files, you can contact the agencies and order your credit file for a small fee. If you spot information you think is incorrect, you should write back asking for the record to be amended. Credit Sale This is the most common type of credit agreement. Under credit sale, you buy the goods at the cash price. You usually have to pay interest but some suppliers offer interest-free credit. Repayment is made in instalments. You are the legal owner of the goods as soon as the contract is made and the goods cannot be returned if you change your mind. The supplier cannot repossess the goods if you fall behind in repayments but can take court action to recover the money owed if you are in arrears. Credit sale agreements are now more common than hire purchase (HP) agreements and it is important not to confuse the two. See HP for more information. Credit Score/Rating This is a system used by lenders to calculate the statistical probability that a loan they grant to you will be repaid. Different lenders have slightly different rules for assessing risk but each lender works out the characteristics of good and bad customers, based on its past experience. Homeowners or borrowers with steady incomes may be considered less likely to default. Each answer you give on your application form will be given a rating. If the total score is above a certain figure, your application is accepted. Because credit scoring is the key to different lenders risk management they do not easily reveal the precise details of how it works. 13

15 Every score is individual and calculated using a mathematical formula that evaluates all types of information on your credit report, compared to information patterns in millions of past credit files. The score can then identify your level of future credit risk. To work out your credit score lenders ask you for details of: your income your expenses major things you own - like your home any other loans you currently have They give points for each of your answers. If you don t score enough points, they may: refuse to give you a loan offer to lend you a smaller amount charge you a higher rate of interest If you have been refused credit, you are entitled to know whether a credit reference agency was consulted (and be given their contact details) and also whether or not your credit report adversely affected your application. If you are refused credit, under the Data Protection Act 1998 you have the right to ask that your application be assessed manually. Although you have no legal right to credit or to a detailed explanation of why any application you make is turned down, credit industry codes of practice do encourage lenders to at least tell you the principal reason behind their decision. A lender won t usually tell you why they ve refused you a loan but they may give you a general idea if you ask them. Credit Union A credit union is a self-help co-operative whose members pool their savings to provide each other with credit at a low interest rate. If a member fails to repay a loan, the credit union can seek repayment through the courts. Creditor Creditors are the people or companies to whom you owe money for goods and services supplied by them to you on credit. Your credit card company is also your creditor if you have an outstanding balance on your card. 14

16 D Debit Card You can use a debit card in much the same way as a credit card but instead of still owing money after making your purchase, the funds are automatically withdrawn from your bank account and you pay for them immediately (or within a few days). Most debit cards can be used to purchase goods and services in shops and withdraw money at home and abroad from ATMs. Some debit cards may also be used as cheque guarantee cards. Whilst you can also use a debit card to purchase goods on the internet and mail order, you should be aware that they have less legal protection from fraud than credit cards. Consequently, it is generally safer to use a credit card in these situations. Debt Debt is something which is owed. It could be in the form of money, assets or favours. A debt is created when a creditor agrees to lend a sum of money or assets to a debtor and is usually granted with expected repayment; in many cases, plus interest. Debtor Debtors are the people or companies who owe you money for goods or services you have supplied to them. Default Charges Most credit card companies have charges that will be applied if you do not keep your side of the agreement. You will incur charges if you breach the agreement you have signed with your credit card company such as: making a late payment (i.e. failing to pay at least the minimum repayment by the date it is due, shown on your statement) going over your credit limit (i.e. spending more than has been agreed) if a payment is returned (e.g. if the cheque you have written to pay off your account bounces). In 2006, the Office of Fair Trading declared that A default charge should only be used to recover certain limited administrative costs. The OFT also stated that where credit card default charges are set at more than 12, the OFT will presume that they are unfair and is likely to challenge the charge unless there are limited, exceptional business factors in play. 15

17 Since then, many consumers have reclaimed their money, by: Writing to their bank requesting list of charges for the past six years Making a claim that these fees are unlawful Raising a court summons There are companies that will do this for you but it is often a lengthy process. Deflation In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the annual inflation rate falls below zero percent (a negative inflation rate), resulting in an increase in the real value of money allowing you to buy more goods with the same amount of money. As inflation reduces the real value of money over time, conversely, deflation increases the real value of money the functional currency (and monetary unit of account) in a national or regional economy. Direct Debit A direct debit is an instruction to your bank from a supplier to make payments from your bank account to a company or organisation on a regular basis. This may be used to pay for goods or services or perhaps used as a regular donation to a charity. There will always be a direct debit mandate, or form, issued first that contains all the details and the bank should not authorise payment unless the mandate is signed by the account holder. Unlike a standing order, which puts you in control of the amount and timing of a payment, a direct debit actually allows any amount to be deducted from your bank account at the request of your supplier. You should receive notification from the supplier if the amount or timing is to change. You may have a direct debit set up to make a payment against your credit or store cards each month. As you will notice, this figure can differ every time, often paying either the minimum amount due or the entire balance, depending on what you have agreed with the card issuer. There are strict banking rules in relation to direct debits and companies and organisations have to qualify to be able to set them up with their customers. 16

18 E EAR EAR stands for the Equivalent Annual Rate. The EAR applies to an overdraft or an account that can be in credit which then goes overdrawn - as opposed to a loan or credit card, which would receive an APR (Annual Percentage Rate). The EAR lets you know how much your borrowing will cost you, if you were to remain overdrawn for a whole year. 17

19 F Fraud Fraud is a crime, punishable by heavy fines and imprisonment. In the broadest sense, fraud is an intentional deception made for personal gain or to damage another individual. There are various methods of fraud and as fraudsters become more astute with technological skills, credit card fraud is on the increase resulting in banks trying to stay one step ahead of the game. Every card holder should be alert to growing crime and take steps to prevent your card from being targeted: Never let your card out of your sight. Keep it somewhere safe in a zipped pocket in your handbag or purse, or in a pocket in your wallet. Don t leave the card where it can easily be spotted. Never tell anyone your PIN or write it down. Instead, change your PIN to something more memorable. Always keep your receipts and check your statement every month. If you see anything you don t recognise, call your card provider immediately. Never leave your card where it can be copied. For instance, if you re in a restaurant, ask the waiter to bring the card terminal to you or go with them to the till. Never give anyone your card and tell them your PIN. If anyone asks for your PIN, let your card provider know immediately. Keep your card provider up to date with your personal information if you change your address, let them know, so they can get in touch if they need to check anything with you. Tell your card provider whenever you re going abroad, so you can use your card without any problems. Good card providers will be keeping a look out and will notice if there is an attempted transaction somewhere outside the UK. The transaction could be rejected if you don t tell them about your trip. If you are going abroad, take the lost and stolen card emergency number with you in your mobile and write it down as well in case your phone gets stolen. If a cash machine looks like it s been tampered with, always use a different one. Make sure no one can see you putting your PIN in, cover the PIN pad with your other hand whilst entering your PIN. Put your card and your cash away safely before you leave the machine. If you ask for a receipt, take it with you to check it against your statement when it arrives and then dispose of it safely. 18

20 FSA Financial Services Authority The FSA is an independent body that regulates the financial services industry in the UK. It sets the standards that they must meet and can take action against firms if they fail to match the required standards. It was set up by UK government who remains responsible for the overall scope of the FSA s regulatory activities and for its powers. 19

21 G Grace Period A credit card s grace period is the period of time between when purchases are made and when interest will begin to be charged on them, this is often days. If the balance is settled for these purchases inside of this period no interest will be charged on them. 20

22 H HP - Hire purchase Unlike a Credit Sale, under a hire purchase (HP) agreement, you are technically hiring the goods until you pay the final instalment. You will not own the goods until then. This means that you can end the agreement and return the goods at any time. However, you will owe any overdue instalments and, if less than half of the total price has been paid, you may also have to pay the difference. The company loaning the goods may be able to repossess them if, for example, you fall behind with payments. The lender does not have to sell the repossessed goods to reduce your debt. 21

23 I Inflation In economics, inflation is a general increase in level of prices of goods and services in an economy and consequent fall in the purchasing value of money over a period of time. When the price level rises, each unit of currency buys fewer goods and services. Consequently, inflation is the destruction of the purchasing power of money a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate, the annualised percentage change in a general price index (normally the Consumer Price Index) over time. Interest Interest on credit cards is charged not only on the purchases and cash withdrawals, but very often on the annual fee, handling fees, late payment or default charges as well. Furthermore there are often different rates of interest for different types of transactions such as purchases, balance transfers, cheque transactions, money transfers and cash transactions and these can vary dramatically. In fact, credit card issuers now use over a dozen different methods of charging interest. If you pay your bill in full, this usually won t affect you but if you had two cards with the same APR rate and used them in exactly the same way, one could end up costing over twice as much as the other just because it calculated your interest differently. This is because the amount you are charged depends not just on the card s rate but on when it starts and stops charging interest. This can make the calculating of the interest very complicated and because there are so many variations and different rates, we are not able to account for every circumstance in this program. Interest Free Period Many credit cards are now offered with either an initial period free of interest or free interest on a balance transfer. These introductory offers tend to be for periods of between 6 and 12 months although some card issuers promise no interest on any outstanding balances transferred until you pay them off. Do bear in mind there may be strings attached to offers like this, including requirements that you make further purchases on the new card. 22

24 Interest Rate An interest rate is expressed as a percentage (%) and is the price a borrower pays for the use of money they do not own. IVA Individual Voluntary Arrangement If you re struggling to pay your debts and you can t work out an informal arrangement with your creditors, you can apply to court for an IVA where you formally agree to pay part, or all, of your debts over a period of time (typically five years). You ll need an insolvency practitioner to set up the agreement and 75 per cent (by value of your debts) of your creditors must agree to it. Bear in mind that IVAs take several months to organise, and you may have to pay a large administration fee. 23

25 L Loan - secured A bank or building society can grant you a loan even if you are not a customer of theirs. They may ask for security on the loan, for example, house deeds or an insurance policy, which means that any security offered may be at risk if you default on a loan. Loan unsecured An unsecured loan and a personal loan are effectively the same thing, but providers use different names to describe the same product. A personal loan is sometimes described as an unsecured loan because it allows you to borrow money without having to provide security against it, such as your home or car. Instead, an unsecured (or personal) loans provider will base their decision on granting you a personal loan by using your personal credit history. This is verified by a credit check to determine your credit rating. 24

26 M MasterCard MasterCard is a credit card payment system formed by the ICA (Interbank Card Association) and has over 20,000 worldwide banks as members. When you are offered a credit card, it will usually either be a MasterCard or a Visa, although there are others including American Express, Diners Club, Discover and JCB. You are very unlikely to notice any major difference between levels of acceptance for Visa or MasterCard at retail outlets, although some banks and cash machines will only enable cash advances of one card type. Merchant A merchant is a business person or organisation who trades in commodities that they do not produce themselves, in order to earn a profit. Merchants can be of two types: A wholesale merchant operates in the chain between producer and retail merchant. Some wholesale merchants only organise the movement of goods rather than move the goods themselves. A retail merchant or retailer sells commodities to consumers (including businesses). A shop owner is a retail merchant. Minimum Payments (DANGER!!) What the credit card companies don t tell you! Credit card companies want you to pay off as little as possible each month so that you pay more interest over a longer period of time. Once you use your credit card and run up an outstanding balance, you have to make a payment each month in order to start paying off the amount you have spent. You may be fortunate enough to be able to pay it off in full, but if not, you will be required to pay at least the minimum payment that the credit card issuer will allow. However, as My Debt Cruncher will show you, this can prove extremely costly and could mean you re repaying your debt for years to come. The minimum amount will be a value equating to more than the interest which has been calculated for the month. Most card issuers will stipulate a minimum percentage of the outstanding balance or a specific minimum payment, whichever is the greater value and both should be displayed on your card statement Typically, most credit card issuers will require a minimum payment of 5, OR between 2% and 5% of the outstanding balance on your credit card account, whichever is the greater value. 25

27 So, for example: With an outstanding balance of: 1000 At an Annual % Rate (APR) of: 19.9% (equal to 1.524% per month) The interest calculated for the first month would be Therefore your card provider would stipulate that you have to pay at least this amount, plus a sufficient sum to pay at least some of the balance off. If the required minimum amount is 2.5% on your outstanding 1000 balance, then you will have to pay 25 for the first month. Please note though, it will be different the following month, whether or not you make any further purchases on the card. Here s why, presuming you never spend on the card again: Opening balance Less your 1st minimum payment (2.5% of 1000) Plus month 1 interest (1.524% of 1000) Less your 2nd minimum payment (2.5% of ) Plus month 2 interest (1.524% of ) Therefore, by only paying the minimum amount, you will still have only paid off your balance, even though you ve actually made payments of 49.76!! 26

28 Some card issuers stipulate a low minimum % payment OR the total of the charges (such as interest, insurance, handling fees etc) plus 5, whichever is the lower amount. Because of the complication this presents, we cannot account for such circumstances in this current version of My Debt Cruncher. If that is the case with your card, the best thing to do is enter the minimum % to result in a worse case scenario. Money Lender Money lenders usually lend small amounts of money at high rates of interest (the highest APR we ve seen so far is 2689%!). They must be licensed and if they are not licensed, they are operating illegally. Illegal money lenders (known as loan sharks) often work from home, charge very high interest rates and don t provide you with much paperwork to confirm the arrangements they have made with you. Sometimes, loan sharks will take other illegal actions to collect the money they have lent you, such as threatening violence or taking away your credit cards or valuables. You can find out whether a money lender is licensed by checking the Financial Service Authority s Register at If you borrow money from someone who doesn t have a licence, you haven t broken the law they have. There is a website which tells you more about loan sharks. Go to: index.html. In England, Wales and Scotland, if you think a money lender is operating without a licence, you can speak in confidence to the loan shark hotline. People running the hotline can give you advice about your situation and the information you provide helps them to take action to stop illegal money lending. The hotline number is You can also report loan sharks by on: stoploansharks@birmingham.gov.uk. MIR - Monthly Interest Rate (BEWARE) Credit card companies are required by law to tell you the Annual Percentage Rate% (APR) on the card you have with them,however some providers put greater emphasis on their MIR% in their advertising and leaving the APR for the small print. Watch out for this as you will see in the Interest Rate Convertor in the program, what seems like an attractive MIR of 3%, actually results in an APR of a whopping 42.58%! The APR% is not calculated by simply multiplying the MIR value by 12 which is why we ve provided the convertor in the program to help you achieve more accurate results. 27

29 N National Debtline National Debtline offers free, confidential and independent advice on how to deal with debt problems. Because the law concerning debt varies depending on whether you live in England and Wales or Scotland, they offer debt advice for people living in different parts of the country. You can call their helpline on and also download useful publications from their website: 28

30 O Official Receiver Official receivers are civil servants from the Insolvency Service (part of the Department for Business, Innovation and Skills). They are attached to each court, and when a bankruptcy or compulsory winding up is ordered, one of them will be appointed as official receiver for your case. When appointed, the official receiver will interview you and take over the financial affairs of you or your company. Overdraft A bank or building society may agree that your account, usually a current account, can go overdrawn. It occurs when withdrawals from the account exceed the balance that is available. Interest is usually charged for going overdrawn and fees may be charged if you go over the agreed overdraft limit. Overpayment You can usually make overpayments on your loan or mortgage but beware that you won t be penalised for over-paying too much. Check the terms of agreement first. Furthermore, very often, the interest calculated is based on the contractual monthly payment and does not take lump sums or overpayments into account: this only reduces the term of the loan/mortgage, not the interest. 29

31 P Pawnbroker Pawnbrokers lend money against the value of property left with them and they must give a receipt known as a ticket. Pawnbrokers agree to keep the property for at least six months but you can get it back at any time during that period by paying off the loan plus interest. The period can be extended by paying the interest only and re-pledging the property. Payment Protection Cover Payment protection insurance, or PPI, is insurance that will pay out a sum of money to help cover your monthly repayments on mortgages, loans, credit/store cards or catalogue payments if you are unable to work. This could be because you have an accident or sickness, or become unemployed through no fault of your own, or if you die. PPI is almost always optional and, if you decide to take it you should always make sure you receive your insurance policy and read the terms and conditions carefully. The firm should give you a Policy Summary which should set out the key features and benefits, as well as any significant or unusual exclusions or limitations. If you have any queries about these, you should ask the salesperson to explain the cover in more detail. This will help you make an informed decision on whether to take out cover. In the case of credit cards, the insurance will generally pay off a percentage of your outstanding balance or the minimum payment each month for up to a year, but check which option is being offered. This would mean that you may still have to pay any balance left after this time. 30

32 R Revolving Balance A revolving balance is the balance that a cardholder carries from month to month, on which interest is charged. Very often, transferred balances are not included in a revolving balance as they usually have a 0% or lower interest rate applied to that amount. Rewards Some credit and store card providers offer rewards for using your card, ranging from cash back to days out, points for every 1 you spend and even holidays and flights. Whilst it can be tempting to take up these free offers, you should always check the small print and always check how much your reward points are worth they are very often valued at only a fraction of one penny. Card issuers simply want you to spend more on your card, for two reasons. First of all they make a small percentage on every purchase you make using your card and second they will hope that you won t pay back the full amount each month and consequently accrue vast amounts of interest. 31

33 S Settlement full and final You may wish to offer your creditors (the people you owe money to) a full and final settlement. This means that you ask the creditors to let you pay a lump sum which is less than the full balance you owe on the debt. In return for having a lump sum payment the creditor agrees to write off the rest of the debts. You may be able to do this because you have come in to some money or have some savings you can use, or maybe a friend or relative offers to put forward a lump sum to help you pay off the creditors. Your circumstances may be very unlikely to change for the better in the future. It is very important that you explain to the creditors that the money will not be available forever and the friend or relative will not make the payments unless the offer is accepted. Skimming Skimming is when someone copies the data from your card s magnetic strip onto another card without your knowledge. It can happen anywhere cash machines, shops, bars, restaurants and petrol stations. You should always make sure you can see your card when you re making a transaction If someone asks for your PIN and refuses to bring the PIN machine to you, refuse to give it to them, take your card and call your credit card company immediately. Smart Card A smart card is like a mini-pc in your wallet and it can do anything a computer can be programmed to do. The possibilities for smart cards are virtually unlimited and can be enhanced with new functionality, like e-tickets, rewards points, personal preferences, and secure ID to name a few uses. Smart cards have many benefits over existing debit cards - they can store much more information on them than traditional magnetic stripe cards and are expected to sharply cut down on card fraud due to the highly sophisticated system of encryption locks and keys which authenticate the card. They also provide far greater resistance against today s fastest growing fraud problem: skimming, where criminals duplicate information from the magnetic stripe of a credit or debit card and begin using such cards for their own benefit. It will be possible to, for example, store your mortgage details and your health records on a smart card together with a quantity of cash which can then be used to pay for small purchases such as newspapers and car parking. 32