Personal Loans Glossary: An A-Z of Personal Loans

The world of personal loans can feel like it's filled with complicated jargon. We explain some common words and phrases that you might come across when searching for a personal loan.

• Affordability
• Annual Percentage Rate (APR)
• Cooling-off period
• County court judgment (CCJ)
• Credit broker
• Credit rating
• Credit record
• Credit reference agency
• Credit score
• Creditworthiness assessment
• Default
• Early repayment charge
• Eligibility check
• Eligibility criteria
• Financial Conduct Authority (FCA)
• Gross income
• Hard credit check/hard credit search
• Individual Voluntary Arrangement (IVA)
• Interest rate
• Late repayment fee
• Loan agreement
• Loan amount
• Loan application
• Loan calculator
• Loan repayment
• Net income
• No-obligation quote
• Overpayments
• Payday loans
• Repayment holiday
• Representative Annual Percentage Rate (Rep. APR)
• Secured loan
• Soft credit check/soft credit search
• Term (loan term)
• Thin credit history
• Total amount repayable
• Unsecured loan

Affordability

When a customer applies for a loan, the lender will look at their income from wages, benefits, or a pension. They’ll also review their outgoings, such as housing, bills, and other essential costs. This helps the lender understand if the customer can afford to make their loan repayments.

Annual Percentage Rate (APR)

The Annual Percentage Rate (APR) shows the cost of borrowing money over a year. It includes the interest rate and any standard fees. It does not include other charges, such as late repayment fees.
The APR offered to a customer will depend on the customer's circumstances, including their credit history.

Cooling-off period

Most personal loans are covered by the Consumer Credit Act 1974, which means you’ll have 14 days to change your mind. This is called the ‘cooling-off period’. If you decide not to go ahead, you can cancel the loan during this time. You will still need to repay any money you have already borrowed, plus any interest.

County court judgment (CCJ)

If you miss loan repayments and cannot reach an agreement with your lender, they may take legal action to recover the money you owe. If the court decides that you owe the debt, it can issue a county court judgment (CCJ), which sets out how the debt should be repaid.
A CCJ can make it harder to get credit and will usually stay on your credit record for 6 years.

You can find out more about CCJs in our guide.

Credit broker

A credit broker helps customers search for and compare credit options. A credit broker does not lend money or provide credit.
Little Loans is a credit broker.

Credit rating

Your credit rating is based on information in your credit record. It can range from Very Poor or Poor/Needs Work to Excellent. Your credit rating may be different for each credit reference agency.

Credit record

Your credit record is a history of how you’ve used credit. This includes things like loans, credit cards, and mortgages.
It can also show other financial commitments, such as mobile phone contracts, some utility accounts in your name (like gas, electricity, or water), your bank account, and insurance paid in instalments.
If you’ve had a county court judgment (CCJ), an Individual Voluntary Arrangement (IVA), or have been declared bankrupt, these will also appear on your credit record.
When you apply for credit, the lender will check your credit record using a hard credit search. In most cases, the lender can see information from the past six years.

Credit reference agency

There are three credit reference agencies (CRAs) in the UK: Experian, Equifax, and TransUnion.
A CRA collects information about your credit history and uses it to create your credit record. CRAs may also give you a credit score based on the information they hold.
Your credit score may not be the same with each CRA because each may hold slightly different information about you.

Credit score

Your credit score is a number based on the information in your credit record. Your credit score can go up or down, depending on how you manage your credit accounts.

Creditworthiness assessment

When you apply for credit, the lender will check if you're likely to repay any money you borrow.
To do this, they may look at your credit record, complete a hard credit search, or use Open Banking data if you agree to share it.

Default

A default is usually recorded when you have fallen significantly behind on your loan repayments and have not agreed on a repayment arrangement with your lender.
A default can be recorded on your credit record and may make it harder to get credit in the future.

Related post: What happens if I default on a loan?

Early repayment fee

An early repayment fee is a charge some lenders apply if you repay your loan before the end of the agreed loan term.
Check your loan agreement or contact your lender to find out whether an early repayment fee applies.

Eligibility check

An eligibility check may look at information such as your gross or net income, credit history, and employment status. It does not guarantee approval but gives you an idea of your chances.
An eligibility check uses a soft credit search, which does not affect your credit score.

Eligibility criteria

Eligibility criteria are the requirements you must meet before you apply for a loan. Each lender has its own eligibility criteria.
We’ve included the Little Loans eligibility criteria below as an example.

To search for a loan with Little Loans, you must:

• Be over the age of 18
• Be a UK resident
• Have a UK bank account and a valid debit card
• Have a regular income paid into your bank account

Financial Conduct Authority (FCA)

The Financial Conduct Authority (FCA) is the UK regulator for financial services.
It authorises and regulates companies that offer financial products, such as loans and credit cards.
You can check whether a lender is authorised by using the FCA Firm Checker Tool.

Gross income

Gross income is the amount you earn before deductions such as Income Tax and National Insurance.
Lenders use your gross income to help assess whether you can afford the loan repayments.

Hard credit check / hard credit search

A hard credit check, also known as a hard credit search, is a type of credit check that a lender may carry out when you apply for credit.
It allows the lender to see information in your credit record and helps them decide whether to approve your application.
A hard credit search is recorded on your credit report and can usually be seen by other lenders for up to 12 months, depending on the credit reference agency.
Having several hard credit searches in a short period may harm your credit score.

Related post: Hard credit checks: what are they and how do they work?

Individual Voluntary Arrangement (IVA)

An IVA is a legally binding agreement between you and your creditors that allows you to repay your debts through affordable monthly payments over a fixed period, usually five to six years. It is arranged and managed by a licensed insolvency practitioner, who works with your creditors to agree the terms.

Interest rate

When you take out a loan, you'll be charged interest on the money you borrow.
The interest rate shows how much interest you'll pay on your loan. In general, the higher the interest rate, the more you'll pay to borrow the money.
The interest you pay is included in your loan repayments.

Late repayment fee

A late repayment fee is a charge a lender may apply if you do not make a loan repayment by the date it is due.
Late or missed repayments may be recorded on your credit record and could affect your credit score.
If you're struggling to make a repayment, contact your lender as soon as possible.

Loan agreement

A loan agreement is a contract between you and your lender. It contains the full details of your loan, including the loan amount, your interest rate, your loan repayments, and any fees or charges.
You should read the loan agreement carefully before deciding whether to accept.

Loan amount

This is the amount of money you borrow from a lender.
You should only apply to borrow money when you need to and can afford to repay.

Loan application form

A loan application form is used to share your personal and financial information with a lender or credit broker.
The information you provide helps the lender complete a creditworthiness assessment.
You should check that all the information is correct before you submit your loan application form.

If you’re looking for information on how to fill out the Little Loans application form, our guide shares some useful pointers.

Loan calculator

A loan calculator gives you an idea of how much a loan will cost based on the amount you borrow, the loan term, and the interest rate.
The calculation is an example to show what you could pay. The exact cost of your loan will be shown in your loan agreement.

Loan repayments

This is the amount you’ll pay in instalments until your loan is repaid in full. Your loan repayment will include interest. Before you sign a credit agreement, you should make sure that you can comfortably afford to make your repayments.

Net income

Net income is the amount of money you receive after deductions, such as Income Tax and National Insurance, have been taken from your gross income.
Lenders may ask about your net income to assess how much money you have available to cover your regular expenses and loan repayments.

No-obligation quote

When you search for a loan with Little Loans, we’ll provide you with a no-obligation quote. You do not need to go ahead with this quote if you don’t want to or if it’s not right for you.

Open Banking

Open Banking allows you to share information from your bank account with a lender, if you choose to.
Some lenders use Open Banking as part of a creditworthiness assessment to help them understand your current financial situation.

If you’re interested in finding out more, our guide All about Open Banking is a great place to start.

Overpayments

An overpayment is an extra payment you make towards your loan in addition to your regular loan repayments.
Making overpayments can reduce your loan balance more quickly and may reduce the amount of interest you pay.
Some lenders may have rules, limits, or fees for overpayments, so check your loan agreement before making one.

Payday loan

A payday loan is a type of personal loan that is usually repaid over a short time, typically 31 days. Payday loans often have higher borrowing costs than other types of loans.

Repayment holiday

A repayment holiday is when your lender lets you take a break from your loan repayments for a short time in certain circumstances; for example, if you’re struggling financially. Interest will usually still be charged during your repayment holiday, which could increase the total cost of your loan.
If you’re struggling to repay your loan, contact your lender as soon as you can to discuss the support available.

Representative Annual Percentage Rate (Rep. APR)

The Representative APR is the interest rate a loan or credit card is advertised with.
At least 51% of customers who take out the credit product must receive the Representative APR or a lower rate.
If approved, the interest rate you are offered may be higher, lower, or the same as the Representative APR.

Secured loan

A secured loan is a loan that is linked to something you own, such as your home or car. If you do not keep up with your loan repayments, the lender may be able to take and sell that asset to get back the money you owe.

Soft credit check / soft credit search

A soft credit check, also called a soft credit search, lets a credit broker or lender look at your credit record without harming your credit score. It’s usually used as part of an eligibility check to show how likely you are to be approved before you make a full application.
A soft search can be seen by you and the company that searched, but not by other lenders.

You can find out more about soft search credit checks in our guide.

Term (loan term)

The loan term is the length of time you agree to repay a loan. Sometimes this is called the loan duration.

Thin credit record

If a customer has never used credit before, they may have what’s known as a thin credit record.
It may be harder to get credit because lenders have less information to help them make a decision.

Total amount repayable

This is the total amount you repay your lender, including the amount borrowed, interest, and any applicable fees or charges.

Unsecured loan

An unsecured loan is a loan that is not linked to any of your assets, such as your home or car.

What to do if you’re worried about money

If you’d like to talk to someone about money or debt concerns, free, confidential advice is available from StepChange, MoneyHelper, Citizens Advice, and National Debtline.