Glossary

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 (Scotland)

Arrestment is a method the courts can use in Scotland to reclaim money due on a debt. The courts will freeze any bank account(s) you have and can use any money in the account towards your debt.

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.

Beneficiary

A beneficiary is someone who is going to receive assets or profits from a trust, an estate, an insurance policy, or any other contract, when the conditions within the contract are met.

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.

Broker

A broker is a person or organisation that acts on your behalf when negotiating and selling things such as insurance, mortgage, stocks, and property purchases.

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.

Buildings insurance

Buildings insurance is a type of insurance that contributes towards the cost of repairing or rebuilding the insured building.

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 (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 as long as the child is in full time education.

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.

Conditional sale

Conditional sale is a type of credit agreement, often used to buy a car. You do not own the goods until you have finished paying the credit agreement.

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.

County court judgment

A county court judgment is a court order that orders you to make payments towards a 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. 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) who lends you money.

Critical illness cover

Critical illness cover is a type of insurance which will provide a lump sum payable upon diagnosis of a specific illness.

Debt

Debt is a term used to describe an amount of money owed.

Debt collection agency

Debt collection agencies are organisations who 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 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 £20,000 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.

Exceptional attachment (Scotland)

Exceptional attachment is the removal of non-essential belongings from your house. The goods will be sold and the money put towards your debt.

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.

Final salary plans

A final salary plan is a pension that is based on the number of years of service and the value of your final salary.

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.

Hire purchase

Hire purchase 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 payment the goods may be repossessed.

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 dependant 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.

Investment fund

An investment fund is a pool of money that is managed professionally.

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 liability

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.

MAP (Scotland)

Minimal Asset Process is a form of bankruptcy in Scotland. It is suitable for debtors who have a low income and assets of low value.

Maximising income

Maximising income is a way of increasing the money you receive.

Means testing

Means testing is the method the Government uses to decide if you are eligible for certain benefits.

Money purchase agreement

A money purchase agreement is a form of pension where your final pension depends on stock market performance.

Monthly expenses

Monthly expenses are regular items you pay for each month which may include your household bills and payments to your debts.

Mortgage

A mortgage is a loan that you take out to buy a house. If you miss payments to a mortgage, your lender could try to repossess your property.

Non-priority debts

Non-priority debts are debts where non-payment will not lead to serious consequences like loss of your home or imprisonment. However, your credit rating may be affected if you do not pay non-priority debts.

Official receiver

The official receiver is a court official who deals with bankruptcy proceedings.

Outright possession order

An outright possession order is a court order that is granted at a repossession hearing. It means that the courts have given the lender possession of the property. You will be given an eviction date for 28 days later. By this date you will need to move yourself and your belongings out of the property. On the day of eviction, bailiffs may change the locks to your house

Payment holiday

A payment holiday is where a creditor agrees for you to stop making repayments on a debt for a fixed period of time.

Pension

A pension is a long-term investment plan designed to provide a lump sum and/or monthly income during retirement.

Pension credit

Pension credit is a means-tested benefit available to people aged over 60 on a low income.

Policy

A policy is a legal document issued to you by an insurance company. It states the terms and conditions of the insurance.

PPI

PPI is payment protection insurance which is a type of insurance sold in conjunction with loans, credit cards or mortgages. It will cover repayments for a set period if you are unable to work due to accident, illness or unemployment.

Premium

A premium is a single or regular payment made to a company for a product.

Priority debts

Priority debts are ones where non-payment can lead to serious consequences, for example loss of your home or imprisonment.

Private pension

A private pension is a type of pension that does not include any additional contribution by employers or the Government.

Redemption penalty

Redemption penalties, or early repayment charges, are paid to lenders if you repay money outstanding on credit before the term of your agreement has ended.

Repossession

Repossession is the legal process where a mortgage lender or secured loan provider takes possession of a property. If you miss mortgage payments, your lender may ask the courts to evict you from your house. Your lender will then sell the property.

Remortgage

Remortgaging is the process of using a new mortgage to pay off an existing mortgage, using the same house as security.

Right of Offset

If you have a bank account and a debt with the same bank and then miss payments to the debt, your bank may use the Right of Offset. This means your bank may take money out of your bank account to cover the payments you have missed.

Section 2 order

A Section 2 order is a court order that you can apply for at a repossession hearing. You can apply for a section 2 order if you want to stay in the property and can come to an arrangement to clear your mortgage arrears. You can also use a section 2 order to ask for time to find alternative accommodation if you cannot afford to stay in your home.

Secured loan

A secured loan is a loan that is secured against your house. If you miss payments to a secured loan, your lender could try to repossess your property.

Sequestration (Scotland)

Sequestration is Scottish bankruptcy. It 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.

Sherriff officer (Scotland)

A sheriff officer is a court official in the Scottish courts. He or she is responsible for enforcing judgments and issuing court forms.

Shortfall

If you sell an item for less than the value of the debt secured against it you will have a shortfall. Your lender will expect you to repay the shortfall. For example, if you sell your house for less than the value of your mortgage you will have a shortfall.

Standing order

A standing order is an instruction you give to your bank to pay a certain person or company each month. A standing order has to be for a fixed amount.

Stakeholder pension

A stakeholder pension is a type of low charge pension that has to comply with certain Government standards. Stakeholder pensions are available from commercial companies such as banks, insurance companies and building societies.

Statutory demand

A statutory demand is a court order that demands payment of a debt in full within 21 days. If the debt is not paid, the creditor could start bankruptcy proceedings.

Sub prime lending

Sub prime lending is the term for lending money to people who do not have good credit history, often at a higher rate of interest.

Suspended possession order

A suspended possession order is a court order granted at a repossession hearing. It means that your lender cannot repossess your property as long as you make the payments the court asked for each month. This is usually the contractual monthly payment and an additional amount to clear the arrears within a reasonable time.

Term

The term is the period of time for which a legal agreement, such as a policy, lasts.

Term assurance

Term assurance is a type of insurance that pays a lump sum out if you die during the term of the policy. If death doesn’t occur during the term, then the policy will finish, with no payout made.

Time order

A time order is a way of asking the courts to give you more time to pay a debt if you have fallen into arrears. It can change the amount you have to pay each month or the term left on the credit agreement. In some cases, it is also possible to use a time order to get agreement to change the interest rate.

Tracker rate

A tracker rate is an interest rate that follows the increases and decreases of another interest rate. For example, a tracker mortgage may follow the Bank of England base rate.

Transactions at an undervalue

A transaction at an undervalue is giving away an asset for less than it is worth. For example, giving away your car to a friend so that it would not be included in your bankruptcy proceedings.

Trust deed (Scotland)

A trust deed is a legally binding agreement, used in Scotland, between your creditors and you to clear outstanding debts you cannot afford to repay. Through a trust deed you pay back an agreed proportion of your debts over a set amount of time, usually 4 years.

Unit trust

A unit trust is an investment where a number of individuals place their money with a professional manager who manages the total investment fund on their behalf.

Unsecured loan

An unsecured loan is a loan where no asset has been offered as security. These are sometimes referred to as personal loans.

Variable rate

A variable rate is an interest rate, that can increase or decrease as decided by the lender.

Warrant of execution

If you do not pay a county court judgment, the creditor will ask the courts for a warrant of execution. A warrant of execution gives bailiffs the right to try to recover the debt by taking items from your house and selling them.

Will

A will is an official statement of what you decide should be done with any money or property after your death.