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A Guide to Understanding the Financial Jargon Involved When Applying for a Loan

This post serves to help inform those in need of a little help understanding the ocean of terminology that seems to be employed in the financial sector. If you're anything like me you wouldn't have a clue what most of these terms mean through the natural course of living your life. But they suddenly become very important when you're discussing your loan situation with a professional. I highly recommend being as informed as possible on the subject so you don't run into any nasty surprises! I've included a sample of definitions below but if you want a more complete financial dictionary I recommend checking out the jargon buster wonga website.

Financial term: Arrears

Definition: This refers to a specific financial position you may find yourself in. If you have a scheduled loan or some other kind of payment (such as paying off your credit card) but then do not make the weekly / monthly required instalment payment then you become 'in arrears'. This is obviously a dangerous position to be in. For one, it can late payments can damage your credit score and make it very difficult to obtain any additional credit in the future, on top of this if your cash loan is secured against some kind of collateral (this is something of high value that you have ownership us, traditionally houses are used but all of your possessions have a monetary value to loan against) then it becomes within the rights of your loaner to repossess this collateral. So basically they're taking whatever they can get off you in order to cover the balance you can't pay them. Definitely not somewhere you want to me!

Financial term: BACS payment

Definition: This type of payment is essentially a digital credit card payment that comes direct from one account in a bank / building society straight to another. The whole process happens digitally without cash going into any hands. You are more than likely paid your wages by such a method unless you're receiving cheques. They generally take a couple of days to go through the transferring process before you see the balance change and have access to the money on the receiving end. It's referred to as 'BACS' simply because the payment service is operated by a group on financial institutions that together can be referred to as the 'Bankers Automated Clearing Service'.

Financial term: Credit Crunch

Definition: This one has been a buzz word for the last couple of years, what with the recession and all. It's simply referring to a restriction or 'crunch' on the overall availability of credit that customers have access to. The crunch means it becomes harder to qualify for a loan, and if you do qualify for the loan, the conditions will not be as favourable for you as they would be during a time of more relaxed lending. This means you'll generally have a higher interest rate to pay. The crunch tends to happen when the banks get worried about their money, this is usually because of something obvious like the recession but it can also become an issue if housing prices start to trend downwards or even a tangible trend begins to happen in global currency markets.

Published at Mar, 25 '13 , Read 1418 times.

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