Types of Debt & Glossary
Bank Overdraft / Bank Account Debt
A bank overdraft occurs when money is withdrawn from abankaccount and the availablebalancegoes below zero. In this situation the account is overdrawn. If there is an agreement with the bank for an overdraft, and the amount overdrawn is within the authorised overdraft limit, theninterestis normally charged at the agreed rate.
Credit / Store Card
Acredit cardis apayment cardissued to users as a system ofpayment. It allows the cardholder to pay for goods and services based on the holder's promise to pay for them. The issuer of the card creates arevolving accountand grants aline of creditto theconsumerfrom which the user can borrow money for payment to a retailer or service provider or to take as acash advance.
Personal Loans
A monetary amount advanced for personal use by a bank or finance company; usually unsecured and based on the borrower's integrity and ability to pay through monthly instalments.
Pay Day Loans
Payday loans are designed to be a short term fix to a problem. But they can cause more problems if you don’t have enough money to pay the loan back the next month.Payday loans have huge interest and charges associated with their loans, it is one to avoid in our opinion.
Car Hire Purchase Agreement or Conditional Sale Agreement
Hire purchase or Conditional Sale is a type of credit agreement where you hire goods for a certain amount of time. You do not own the goods until you have made all the payments set out in the credit agreement. If you miss payments the goods may be repossessed.
Log Book Loan
A logbook loan is a term for a bill of sale securing a loan on a debtor's vehicle. The structure of the loan means that the lender can repossess the debtor's vehicle without a court order if you fail to make the payments.
County Court Judgement
A county court judgment is a court order that orders you to make payments towards a debt.
Council Tax Arrears
Council tax arrears are a priority debt. This means non-payment could, after court action, result in the removal of essential items from your home by bailiffs and in extreme cases imprisonment.
Child Support Arrears
The state of being behind or late with your child support payments, this is a required obligation if you are separated from the child’s mother and the child lives with the mother or guardian.
HMRC / Tax Debt
An outstanding debt to HMRC is usually outstanding income tax, VAT or National Insurance. This can also be overpayment of child tax or working tax credits.
Mortgage
A legal agreement by which a lender, lends money to aid a property purchase. The lender takes an interest on the debt and a charge on the title deeds until the debt is repaid in full.
Administration Order
An administration order is a way of paying something to your debts if you cannot afford the full payment each month. The courts will administer the payment to your debts. You need to owe less than £5,000 and have a county court judgment to apply.
AER
AER is the Annual Equivalent Rate. The AER is used to demonstrate what your interest return would be on a savings account. It assumes that any interest is added to the balance (compounded) and the next interest payment is calculated based on the new balance.
APR
APR is the Annual Percentage Rate. The APR is a measure of the cost of each credit agreement, taking into account all the charges made under the agreement. It enables you to compare the cost of each deal and work out which is the best value for you. For example, you could use it to compare one hire purchase agreement with another. However, you should not attempt to compare different types of credit, such as a mortgage with a credit card deal, as each one will have different terms.
Arrears
Arrears are missed payments. If you miss one month’s payment to a debt you will be one month in arrears.
Arrestment of earnings (Scotland)
Arrestment of earnings is a method the courts can use in Scotland to reclaim money due on a debt. Your employer will make deductions from your income and pay them to the creditor.
Asset
An asset is something of value. For example, an asset could be a house, a car or an antique.
Attachment (Scotland)
Attachment is a way of enforcing an unpaid court order. Sheriff Officers will remove goods from outside your house. The goods will be sold and the money put towards your debt.
Attachment of benefits
Attachment of benefits is a method the courts can use to reclaim money due on a debt. The Department of Work and Pensions will take money from your benefits and pay it to the creditor.
Attachment of earnings
Attachment of earnings is a method the courts can use to reclaim money due on a debt. The employer will make deductions from your income and pay them to the creditor.
Bailiffs
Bailiffs are officials who can take away someone’s possessions. Creditors use bailiffs to collect money due on debts. They can remove non-essential belongings from your property. They will then sell your goods and put the money towards your debt.
Bankruptcy
Bankruptcy is the legal procedure to rid yourself of debt that you cannot pay back in a reasonable amount of time. If you have any assets they will be sold to pay back your debt. The remaining debt will be written off.
Balloon payment
A balloon payment is a lump sum payment on a hire purchase or conditional sale agreement. Balloon payments are normally made at the end of the agreement.
Bonds
A bond is an official paper given by the Government or a company to show that you have lent them money that they will pay back to you at an interest rate that does not change.
Budget / Financial Statement
A budget is a list of your income and expenditure. If you deduct your expenditure from your income, it will show if you have a budget deficit or a budget surplus.
Budget deficit
If you spend more money each month than your income, you have a budget deficit.
Budget surplus
If you have money left over from your income once you have paid for all your expenditure each month you have a budget surplus.
Budgeting
Budgeting is the process for making a budget and managing your income and spending.
Capital
Capital is money that you use to generate income or make an investment.
Capped rate
A capped rate is an interest rate or price that can vary. However, it will have a fixed amount it will not go above. This often applies to products such as mortgages and energy bills.
Certificate of satisfaction
This is a certificate produced by the court as proof that a court order, for example a county court judgment, has been paid.
Charge for payment (Scottish Bankruptcy)
A charge for payment is a legal notice served in Scotland. It orders you to pay the debt in full within a certain amount of time.
Charging order
A charging order secures an unsecured debt against a property or land. It turns an unsecured debt into a secured debt. If you do not pay a county court judgment, your creditor could apply for a charging order.
Child benefit
Child benefit is a regular (usually 4 weekly) tax-free benefit payment made to anyone who is responsible for a child or young person. In most cases it is paid until the child is 19 years of age or isthe child has finished full time education whichever comes first
Child tax credit
Child tax credit is a means-tested allowance for parents and carers of children and young people. In most cases it is paid until the child is 19 years of age as long as the child is in full time education.
Company pension
A company pension is a pension plan where your employer pays a monthly contribution. The amount you pay is tax free.
Contents insurance
Contents insurance is a type of insurance that contributes towards the cost of repairing or replacing possessions.
Contractual payment
A contractual payment is the amount that you agreed to pay back towards a debt each month when you first signed the credit agreement. If you do not pay the contractual payment you will fall into arrears and it may affect your credit rating.
County court claim
A county court claim is a legal process for reclaiming an outstanding debt.
Credit file
Your credit file contains details of the money you have borrowed and the payments you have made towards a debt. Your credit file will also have information about any types of credit you have applied for. It also records late and missed payments, where you are registered to vote and any judgements and defaults
Credit rating
Your credit rating is the method a creditor uses to assess whether they want to lend you money. All creditors will use different information to assess you and will score you differently.
Creditor
A creditor is a person or a company (usually a bank or finance company) who lends you money.
Debt
Debt is a term used to describe an amount of money owed.
Debt collection agency
Debt collection agencies are organisations that chase outstanding debts. Sometimes they are employed by creditors to recover the debt; however debt collection agencies can also buy the debt from the creditor.
Debt consolidation
Debt consolidation is the term for taking out a loan and using the money to repay other debts.
Debt / Financial management plan
A debt management plan is an informal way of making reduced payments to your creditors if you cannot afford the full contractual payments.
Debt relief order
A debt relief order is a way of clearing your debts if you are unable to pay them. It is a form of insolvency. You have to owe less than £15,000 to apply for a debt relief order
Debtor
A debtor is someone who has debt.
Decreasing term assurance
Decreasing term assurance is a type of life assurance that pays out a lump sum if you die within the term, but where the amount you are insured for reduces during the term.
Decree (Scotland)
A decree is a judgment or order, issued by a court in Scotland, for non-payment of a debt.
Diligence (Scotland)
Diligence is the term for debt enforcement through the Scottish courts.
Default notice
A creditor issues a default notice when the terms and conditions of a credit agreement are broken, for example if you cannot pay your contractual payments.
Dependent
A dependent is someone who relies on others financially, for example a child.
Direct debit
A direct debit is an instruction that you give your bank to pay a certain person or company each month. A direct debit can be for a variable amount.
Discount rate
A discount rate is an interest rate that is reduced for a specified period of time before it reverts back to the standard rate. Discount rates are often offered as a type of mortgage rate, or for energy bills.
Disposable income
Disposable income is the amount of money which you have available to spend on non-essential items after priority bills have been paid.
Early repayment charge
Early repayment charges or redemption penalties are paid to lenders if you repay money outstanding on credit before the term of your agreement has ended.
Endowment
An endowment is a type of life assurance policy that has an investment element aimed to produce a lump sum on maturity. It is often used as a way to repay a mortgage where only the interest has been repaid to the lender.
Equity
Equity is the difference between the value of your house and the amount outstanding on your mortgage and any secured loans. For example, if your house is worth £100,000 and you have a mortgage for £40,000 you will have £60,000 in equity. It can also be a term used in reference to the value of a company.
Estate
Anything you own is your estate, for example your house, car and personal belongings. This also includes any rights you have to receive money or goods in the future.
Eviction
Eviction is the legal process used to force you to leave your home. Bailiffs may change the locks to the house if you do not leave voluntarily.
Expenditure
Expenditure is the money spent on any outgoings or costs.
Family income benefit
Family income benefit is an insurance that, in the event of a claim, pays out a regular income for the remaining term of the policy, instead of a 'one-off' lump sum.
Final discharge
A final discharge is a court notice that shows that your bankruptcy has ended. This document will mean you are free from debt and the bankruptcy period is over.
Fixed rate
A fixed rate is an interest rate that is unchanged for a set period of time.
Gross
Gross is the total amount before any deductions. For example, gross salary is the total amount of your salary before the deduction of tax and National Insurance contributions.
Guarantor
A guarantor is someone who agrees to pay a debt if the person who owns the debt fails to do so.
IFA
An IFA is an Independent Financial Adviser. These are individuals who offer advice on financial products and investments. They are independent from any company providing the financial products.
Income
Income is financial gain, for example wages, revenue or benefits.
Income protection
Income protection is a type of insurance. It provides a regular monthly income to replace earnings in the event of you being unable to work due to accident or illness.
Income support
Income Support is an income-related means-tested benefit for people who are on a low income.
Income tax
Income tax is a compulsory tax on earnings, pensions and investments.
Individual voluntary arrangement (IVA)
An IVA is a legally binding agreement between you and your creditors. Through an IVA, you pay back an agreed proportion of your debts over a set amount of time, usually 5 years.
Increasing term assurance
Increasing term assurance is a type of life assurance. It pays out a lump sum if you die within the term. The amount you are insured for increases during the term.
Inflation
Inflation is the rate at which prices for goods and services rise over time.
Inheritance tax
Inheritance tax is a compulsory tax beneficiaries pay in the event of your death. The amount payable is dependent on the value of the assets you leave at the time of your death.
Insolvent
A person or a company is insolvent when there is not enough money to meet their monthly credit commitments or repay their debts.
Insolvency
Insolvency is when you have more debt than assets or when you are unable to make the payments to repay your debts.
Insolvency practitioner
An insolvency practitioner is a person who specialises in insolvency proceedings and insolvency law.
Insurance
Insurance is a contract between two people in which one party agrees to compensate the other party for any loss or damage caused by risks identified in the terms of the contract.
Interest
Interest is a charge for borrowing money or reward for saving money.
Interest rate
An interest rate is the percentage rate at which interest is charged on credit, such as a loan, or paid on a credit balance, such as savings.
Irregular bill
An irregular bill is one that you only pay occasionally, rather than every month or every week.
ISA
An ISA is an Individual Savings Account which is a tax-free savings account. You can invest a maximum amount in an ISA every year.
Joint and several liabilities
Joint and several liability is where two people enter into a credit agreement and both become responsible for repaying the whole amount borrowed, rather than just half each.
Joint life second death policy
Joint life second death policy is a type of life assurance that only pays out on the death of the second policy holder.
Key facts document
A key facts document is a document given to you by the provider of financial products. It will clearly show you the costs and features of a particular financial product.
Late fees
Late fees are penalty charges that may be added to your account if you are late with a payment.
Level term assurance
Level term assurance is a type of life assurance. If you die within the term it will pay out a lump sum. The amount you will be paid remains the same throughout the whole term.
Levy
The power to levy is the power of bailiffs to seize and sell goods.
Liability
Liability is when you are responsible for something, for example, making repayments on a credit agreement, utility bill or a tenancy agreement.
Life cover
Life cover is a type of insurance. It pays out a lump sum in event of your death during the term of the policy.