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Glossary of Financial Terms

Consolidation Expert is your trusted partner in navigating the complex world of financial management. As one of the UK’s leading brokers for debt consolidation, we provide the resources you need to take control of your financial future.

Our comprehensive UK Glossary of Financial Terms demystifies the jargon and empowers you to make informed decisions.

A Consolidation Expert pointing at 1-2-3 steps.

Representative 14.8% APR

We are a broker, not a lender.

Representative Example: Borrowing £15,000 over 60 months, repaying £355.28 per month, total repayable £21,316.57.

Total cost of credit £6,316.57.

Interest rate 14.8% (variable).

The lenders on our panel offer loans for 12-360 months, with rates from 4.7% APR to 42.6% APR.

The Representative Example is based on all loans paid out by lenders between 1st Jan 2022 and 31st Dec 2022.

Glossary Of Financial Terms

Term

Definition

Account number

A unique number assigned by a financial institution to a customer's account. It is used to identify the account in all transactions. (E.G., a bank account number)

After tax

The amount of net income after federal, state, and withholding taxes have been deducted. It represents the actual take-home pay from salary or profits from investments. This can often be found on a wage slip provided by a place of work.

AER (Annual Equivalent Rate)

The interest rate for a savings account or investment that shows what the interest rate would be if interest was paid and compounded once each year. It is used to compare the annual interest between financial products.

Alternative credit data

Alternative regular spending data such as rent, Council Tax payments and entertainment subscriptions. This data can be used to build a credit history when traditional forms of credit are not available or there is no long term history.

APR (Annual Percentage Rate)

The annual rate charged for borrowing or earned through an investment. APR is expressed as a percentage that represents the actual cost over a year on a credit card or loan.

Arrears

Money that is owed and should have been paid earlier. This term is often used in relation to overdue payments on rent, mortgages, bills and debts such as personal loans.

Assets

Anything of value that is owned by an individual or company. Assets can be physical, such as real estate or stocks, or intangible, such as patents or trademarks.

BACS (Bank Automated Clearing System)

A system for making direct payments from one bank account to another. It is used for direct deposits and direct debits from bank accounts.

Balance

The amount of money in a financial repository, such as a bank account. It can also refer to the amount of money owed on a loan or credit card.

Balance brought forward

The opening balance at the start of a new accounting period. It is the amount of money carried over from the previous accounting period.

Balance transfers

The transfer of debt from one credit card to another. This is often done to take advantage of lower interest rates or an interest-free promotional period.

Bank account

An account held by a bank in which a customer or entity can deposit or withdraw money. Bank accounts can be used for the safe storage of money, and transactions, or for earning interest.

Bank loan

A sum of money lent by a bank to a customer for a specific period of time. The loan is expected to be paid back with interest.

Bank of England

The central bank of the United Kingdom. It is responsible for setting monetary policy, including setting interest rates.

Bankruptcy

A legal status for a person or business that is unable to repay their debts. The bankruptcy process begins with a petition filed by the debtor themselves, their creditors or by an Insolvency Practitioner on behalf of creditors.

Base rate

The interest rate set by the Bank of England for lending to other banks. It is the benchmark interest rate for all UK lenders.

Borrowing

Receiving something of value in exchange for an obligation to pay back something of usually greater value at a particular time in the future. This is typically done with an agreement in place, such as a loan or mortgage.

Bounced cheque

A cheque that cannot be processed because the account holder has non-sufficient funds. Banks usually charge a fee for bounced cheques.

Building Society

A financial institution owned by its members as a mutual organisation. Building societies offer banking and related financial services, especially mortgage lending.

Buildings insurance

Insurance that covers damage to the structure of your home. This can include damage caused by fire, flood, or other natural disasters.

Bursary

A monetary award made by an institution to individuals or groups of people so that they can study, usually at a college or university.

Charges

A fee is charged for a particular service. In financial terms, charges can refer to the costs associated with banking services, loan repayments, or credit card fees.

Cheque guarantee card

A card that guarantees a cheque will be honoured by the bank. These are now obsolete in the UK.

Compound interest

Compound interest is when you earn interest on both the money you originally saved or invested and the interest it has already earned over time. Compound interest can significantly increase the growth of savings and investments over time.

Comprehensive insurance

Auto insurance that covers damage to your car caused by events that are out of your control. This can include things like theft, vandalism, fire, natural disasters, and collisions with animals.

A loan that is used to combine and pay off other debts. The purpose is to simplify the debt repayment process and often to secure a lower interest rate.

Contents insurance

Insurance that pays for damage to, or loss of, an individual’s personal possessions while they are located within that individual’s home. This can include furniture, appliances, and personal belongings.

Corporation tax

A tax is imposed on the net income of the company. In the UK, all companies must pay Corporation Tax annual profits made, both domestically and globally.

Council tax

A local taxation system is used in England, Scotland and Wales. It is a tax on domestic property which helps to pay for local services like rubbish collection and street cleaning.

Credit

The ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future. Credit is typically granted by a creditor to a debtor.

Credit history

A record of a borrower's responsible repayment of debts. Credit history is used by lenders to assess the risk of potential borrowers.

Credit limit

The maximum amount that a person can borrow from a bank or other lender. For a credit card, the credit limit is the maximum amount that a person can charge to the card.

Credit rating

An estimate of the ability of a person or organization to fulfil their financial commitments, based on previous dealings. A high credit rating indicates a lower risk for the lender.

Credit record

A detailed report of an individual's credit history. It includes information about past and current credit agreements, payment history, and any financial judgments against the individual.

Credit reference agency

An agency that collects and shares credit information about individuals. Lenders use this information to decide whether to offer credit to individuals.

Credit Report

A detailed report of an individual's credit history is prepared by a credit reference agency. It includes personal information, credit history, inquiries, and public records.

Credit score

A number assigned to a person by a credit reference agency that indicates to lenders their capacity to repay a loan. A high credit score indicates a lower risk for the lender.

Creditor

A person or company to whom money is owed. Creditors can be a bank, credit card company, or any other entity that has provided goods, services, or loans expecting payment in return.

Current Account

A type of deposit account that for personal or business banking. Income, earnings and cash can be deposited, funds can be withdrawn and payments can be made by transfer, direct debit and standing order.

Debt

Money that is owed or due. This can be the result of a loan, goods or services that have been delivered but not yet paid for, or a duty to pay a certain amount of money, such as taxes.

Debt Consolidation

The process of combining multiple debts into one larger debt. This is often done to simplify payments, secure a lower interest rate, or for the convenience of having a single, larger loan.

Debtor

A person or institution that owes money. This can be as a result of receiving a loan, purchasing goods or services on credit, or a contractual obligation to pay a certain amount.

Default

Failure to repay a loan or credit agreement according to the agreed terms. A default can result in the lender taking legal action to recover the debt, which can include the seizure of assets.

Deposit

A sum of money placed or kept in a bank account, such as regular earnings income or savings. In the context of a loan or rental, a deposit is usually a fixed amount of money given as security for the repayment of the loan or the protection of property.

Direct debit

An arrangement made with a bank that allows a third party to transfer money from a person's account on agreed dates. Direct debits are typically used for recurring payments, such as utility bills or loan repayments.

Early Repayment Charge (ERC)

A charge you might have to pay if you overpay or pay off your mortgage, loan, or credit agreement early. This is to compensate the lender for the interest they're losing out on.

Excess

An amount of money that you have to pay towards the cost of an insurance claim. The excess is agreed upon when the insurance policy is purchased.

Financial Conduct Authority (FCA)

The conduct regulator for financial firms providing services to consumers in the UK. It aims to protect consumers, ensure the industry remains stable and promote healthy competition between financial services.

Fixed costs

Costs that do not change with the level of output. These are expenses that have to be paid by a company, independent of any business activity. Examples include rent, salaries, and insurance.

Grant

A sum of money awarded by a government or organisation for a specific purpose. Unlike a loan, a grant is not expected to be repaid.

Gross income

Income before taxes and deductions. It includes wages, salaries, bonuses, interest, dividends, and rental income.

HMRC (Her/His Majesty’s Revenue and Customs)

The UK’s tax, payments and customs authority. HMRC is responsible for collecting taxes that pay for public services, paying financial support in the form of certain benefits and tax credit payments, and recovery of unpaid tax and student loans, and enforcement of customs payments and regulations.

IBAN/Swift code

An international bank account number which is used to process payments or money transfers internationally. The IBAN is a unique identifier of an individual bank statement, and the Swift code identifies the bank in an international transaction.

IFA (Independent Financial Advisers)

Professionals who offer independent advice on financial matters to their clients. They consider all the products available on the market and recommend suitable ones based on the client's specific circumstances.

Income

Money, goods or other economic benefit received by an individual or business. Income is generally used to fund day-to-day expenditures.

Income support

Financial support given to people who have low income. It is a type of social security benefit in the UK and is intended to cover basic living expenses. Income Support is being replaced by Universal Credit in the UK and so no new claims are being accepted.

Income tax

Tax paid on personal income. In the UK, income tax is paid on earnings, pensions, savings interest, rental income, income from a trust, some state benefits and benefits from employment.

Inflation

The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly.

Inland revenue

The government agency that was responsible for collecting taxes. In the UK until 2005. This function is now performed by HM Revenue and Customs (HMRC).

Instalments

Regular payments that are made to pay for a good or service, or to repay a debt over a period of time. For loans instalments are usually made monthly and include a portion of the principal loan amount and interest.

Insurance

An insurance policy is a form of contract, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients' risks to make payments more affordable for the insured.

Insurance premium

The amount of money that an individual or business must pay for an insurance policy. The premium is paid regularly, often monthly or annually, for the duration of the policy.

Interest

The charge for the privilege of borrowing money, typically expressed as an annual percentage rate. Interest can also refer to the income earned from depositing money in a savings account or other interest-bearing account.

Interest rate

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding. Interest rates are used by lenders to make a profit on the loan and to cover the risk of default.

ISA (Individual Savings Account)

A class of retail investment arrangements available to residents of the United Kingdom. It is a tax-efficient way to save or invest money, as income and gains from an ISA are tax-free.

Loan

A thing that is borrowed, especially a sum of money that is expected to be paid back with interest. Loans are typically issued by financial institutions and are used to finance large purchases or consolidate debt.

Loan Term

The amount of time you have to pay off your loan. The term of the loan is agreed upon by the lender and the borrower at the outset of the loan.

Means test

An official investigation into someone's financial circumstances to determine whether they are eligible for a grant or benefit. Means tests are used by governments to ensure that only those who truly need assistance receive it.

National Insurance

A system of compulsory contributions to state revenue, levied on workers' income and business profits, and used to fund state benefits. In the UK, National Insurance contributions fund services like the NHS and the state pension.

Net

The amount of money that remains after all costs, taxes, and expenses have been deducted. In the context of a business, net income is often referred to as the bottom line as it appears at the bottom of the income statement.

No claims bonus

A discount on a car insurance premium that is earned by not making any claims on your insurance policy. The discount increases for each year that passes without a claim, up to a maximum discount level.

Overdraft

A deficit in a bank account caused by drawing more money than the account holds. Overdrafts can be authorised (pre-arranged, usually with an agreed interest rate or fee) or unauthorised (resulting in a higher interest rate or overdraft fee).

PAYE (Pay as You Earn)

A method of tax collection on income where the payment of the tax is made simultaneously with the earning of the income. It is used in the UK to collect income tax and National Insurance contributions from employees' pay.

PIN (Personal Identification Number)

A number allocated to an individual and used to validate electronic transactions. PINs are typically 4 digits long and often required for withdrawing cash or making payments on a debit or credit card.

Principal

The original sum of money borrowed in a loan, or put into an investment. Principal can also refer to the face value of a bond.

Priority debts

Debts that need to be paid before others. These are usually debts that if left unpaid, can lead to serious consequences like home repossession or bankruptcy.

Protected no claims bonus

A feature you can pay to add on to your car insurance policy to protect your no claims bonus. This means that even if you make a claim, your no claims bonus won't be reduced.

Quarterly statements

A summary of the performance of a company or account over a three-month period. These statements provide an overview of the company or account’s financial activities and profitability for the quarter.

Repayments

The action of paying back a debt. Repayments typically consist of both the principal (the amount borrowed) and interest.

RPI (Retail Price Index)

An inflation measure which looks at the prices of goods and services most households spend money on and tracks how these prices change over time. It's used in the UK for various purposes including the adjustment of pensions and rents.

Savings Account

A bank account that earns interest. Savings accounts are a safe place to store cash while earning a return in the form of interest.

Scholarship

A grant or payment made to support a student's education, awarded on the basis of academic or other achievement. Unlike a loan, a scholarship does not have to be repaid.

Secured Loan

A loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan. If the borrower defaults on the loan, the lender has the right to take possession of the collateral.

Sort Code

A number which is assigned to a specific branch of a bank for internal purposes. It is used in the UK and Ireland to identify the bank and branch where an account is held.

Standing Order

An instruction to a bank by an account holder to make regular fixed payments to a particular person or organization. Standing orders are typically used for recurring payments such as rent or mortgage payments.

Statement

A summary of all transactions that have occurred over the preceding month or other set period. Bank statements provide an overview of all the money that has gone in and out of your account, including deposits, withdrawals, purchases, and payments.

Tax

A compulsory contribution to state revenue, levied by the government on workers' income and business profits, or added to the cost of some goods, services, and transactions. Taxes are used to fund public services and government operations.

Tax allowance

The amount of income on which you do not have to pay tax. Each person has a personal allowance which is the amount of income you can earn before you start paying income tax.

Tax year

The 12-month period covered by a tax return. In the UK, the tax year runs from 6 April one year to 5 April the next.

Taxable income

Income on which tax is to be paid. It includes earnings from employment, profits from business and rental income, among others.

Term of the loan

The period over which the loan agreement is in force, and before or at the end of which the loan should either be repaid or renegotiated.

Third party insurance

Liability insurance purchased by an insured (first party) from an insurer (second party) for protection against the claims of another (third party). In the context of car insurance, third party insurance covers the cost of damage to others' property or compensation for injuries to others caused by an accident.

Unsecured Loan

A loan that is issued and supported only by the borrower's creditworthiness, rather than by a type of collateral. Unsecured loans are riskier for lenders and therefore usually have higher interest rates.

Variable costs

Costs that change in direct proportion to the volume of output. In business, variable costs include raw materials, direct labour costs, and sales commissions.

Variable rate

An interest rate that can change over time as it is based on an underlying benchmark interest rate or index that changes periodically. This can apply to financial products like mortgages, credit cards, and savings accounts.

VAT (Value Added Tax)

A type of consumption tax that is placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale. In the UK, VAT is charged on most goods and services.

Withdrawal

The removal of funds from a bank account, plan, pension or trust. In some cases, conditions must be met or penalties may apply for withdrawal.

Write-off

The action of reducing the value of an asset to zero in accounting records, often in recognition of it having no value in future. In terms of debt, it refers to the decision by a creditor to declare that a debt is unlikely to be collected, often following the debtor's bankruptcy.

Yearly statement

A document or record of all the financial transactions, balances, and other financial information related to a specific account for a full year. It provides a comprehensive overview of the account's activity and status for the year.

The Importance of Financial Literacy

Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing. By understanding these financial terms, you’re taking a significant step toward improving your financial literacy. This knowledge may help you to make better decisions and achieve your financial goals.

In today’s complex financial landscape, being financially literate is more important than ever. It equips you with the knowledge to navigate financial challenges, make informed decisions about debt and investment, and plan for a secure financial future.

Improving Your Financial Literacy

Improving your financial literacy is a lifelong journey. It involves not only understanding financial terms but also gaining practical experience in managing your finances. This includes setting and following a budget, understanding, and managing your debts, making informed investment decisions, and planning for retirement.

At Consolidation Expert, we are committed to supporting you in this journey. Our resources, including this UK Glossary of Financial Terms, are designed to enhance your financial knowledge and empower you to take control of your financial future.

Find out more about loans and other debt solutions using our blog and knowledge hub.

How Consolidation Expert Can Help

At Consolidation Expert, we’re more than just a financial service provider. We’re a team of dedicated professionals committed to helping you navigate your financial journey.

If you’re considering consolidating your existing debt, apply for a debt consolidation loan with Consolidation Expert today.

A man using a laptop with an Apply speech bubble coming out.

Representative 14.8% APR

We are a broker, not a lender.

Representative Example: Borrowing £15,000 over 60 months, repaying £355.28 per month, total repayable £21,316.57.

Total cost of credit £6,316.57.

Interest rate 14.8% (variable).

The lenders on our panel offer loans for 12-360 months, with rates from 4.7% APR to 42.6% APR.

The Representative Example is based on all loans paid out by lenders between 1st Jan 2022 and 31st Dec 2022.

Our expert's opinion on the use of financial terms.

Financial Expert Andrew Hagger.

Financial jargon can be overwhelming and confusing for those not familiar with it. The complexity and inconsistency of terms create barriers to understanding. Personal finance experts should strive for clear communication, avoiding jargon and using relatable examples. By breaking down these barriers, we can empower individuals to make informed financial decisions and improve their financial well-being.

— Andrew Hagger, at Consolidation Expert.