The world of personal finance can be a confusing one as it is often filled with a range of jargon that is hard to understand. From understanding what exactly ‘interest’ is when saving to figuring out what it means if you ‘default’ on a credit card, this world can be hard to understand. I’m here to simplify these jargon terms to help you to better understand the realm of personal finance.
In terms of saving money, interest refers to the percentage of the amount you have saved that is paid to you by the bank or building society. Interest is paid as a reward for saving your money. In terms of borrowing money, interest refers to the percentage of the amount you have borrowed that you have to pay back to your lender, on top of the borrowed amount. This interest is paid as a fee for borrowing money
Stands for Annual Percentage Rate and this shows how much it will cost you to borrow money each year. This rate includes any fees that you need to pay and is shown as a percentage.
This is a notice that is put onto your credit file when you break the arrangements of your credit agreement. For example, if you have a credit card and have agreed to repay the minimum each month but miss payments, you would have broken your credit agreement. When you do default on a credit card, the credit lender will require you to make repayments to clear the balance and will close your account once it’s cleared. Defaults remain on your credit file for six years.
This is a score that is given to you by credit reference agencies that shows how responsible of a borrower you are. The higher your score, the more responsible you are. Credit scores may differ across different agencies and this is because each agency uses its own range of criteria to determine your score.
Stands for County Court Judgement. This is when you owe someone money and the court has ruled that you must pay it back. This is put onto your credit file which will affect your credit score and make it harder for you to borrow money in the future. A CCJ will remain on your credit file for six years.
This is a type of mortgage where the interest rate tracks the Bank of England base rate. These mortgages don’t tend to match the BOE base rate, they’re usually set slightly above this rate.
Stands for Individual Savings Account. This is just like a regular savings account, the only difference is that any money you save in this account is tax-free. You’re able to open one ISA account of each type (Cash, Stocks and Shares etc) each tax year.
This is part ownership of a company that is also known as equity. For example, if you hold one share in Klarna, you own one part of the company.
This is a debt that you’re able to own in return for interest payments, just like an IOU. For example, if you bought a Klarna bond, you would be purchasing debt (look at it as you giving Klarna a loan). In return, Klarna will agree to pay you back interest over a specified period of time eg. 5 years. After this time has passed, Klarna will repay back the bond to you in full.
This is the payment of a company’s profits to its shareholders and can be paid out in the form of cash or an additional share.