The jargon of finance can be bewildering to the layperson. That's why we've created this quick guide to some of the terms that often catch people out.
When you want to be in control of your finances, it helps to get to grips with a few key terms. We’ve picked out ten of the terms that frequently confuse people, providing you with an at-a-glance overview.
Quite simply, a balance transfer is when credit card debt is moved off one card and onto another. Customers often do this in order to switch to a card offering a lower rate of interest. Although most credit cards start out charging low or even 0% interest, they can become increasingly expensive as time passes.
If you’re dealing with someone who describes themselves as a broker, you’re usually dealing with an independent person, rather than a particular bank or building society. The best brokers are those who have access to the full market of finance products and so can search for exactly the right product for you.
Debt consolidation is the process of taking out a single loan and using the money to pay off multiple other debts. Grouping debts together in this way is often a more organised way to stay on top of what you owe.
Dividends are the money that’s paid to the shareholders of a company. They can be cash, but they can also be shares of stock. How valuable dividends are depends on the earnings and success of the company.
Early settlement / early repayment
Sometimes, when you’ve got a loan or other debt, you may be able to repay the money owed before the agreed repayment term. Lenders generally prefer loans to last their term so that they can make more money - that’s why some may apply early settlement charges to compensate for the interest they’ve lost.
Equity release is a way of accessing the money locked in your home’s value without having to move out of or sell your home. There are a number of ways to release equity, which has become an increasingly attractive prospect among older people.
An ISA is an individual savings account. ISAs encourage individual savers to put more money aside because the money they accumulate is free of tax.
Loan to value ratio
Loan to value ratio (LTV) is a term associated with mortgages. It is the amount of money lenders are prepared to lend to you to buy a property, in relation to its purchase value. The LTV is shown as a percentage. If you wanted to buy a flat worth £100,000 and you needed to borrow £50,000, the LTV would be 50%.
When people remortgage properties it is usually because they can get a better deal with lower payments by moving to a new mortgage provider or product. The way it works is that the new mortgage company pays off the balance owed on the property to the old mortgage provider. Then, a new repayment begins from the homeowner to the new provider.
Total amount repayable
Total amount repayable, or TAR refers to the full amount a loan will cost you, on a monthly or yearly basis, to pay back. TAR includes the amount of the loan itself, the interest on it and all other charges.
Knowing and understanding these terms can really help you to navigate your finances. Ultimately, in the financial world knowledge is power, and it pays to stay informed.