17th December 2018
When you’re considering a loan you may encounter abbreviations, jargon and small print on the lender’s website. It’s important to fully understand this terminology and read it carefully before proceeding. At MYJAR we aim to make the borrowing process clear and simple, using plain English and fully explaining any terminology.
Below are a few financial terms that you need to be aware of when considering a loan:
APR / Representative APR
APR stands for Annual Percentage Rate. It’s the standardised way that lenders have to describe the cost of borrowing money over a year which allows you to compare the cost of other loans or credit products from different lenders. It takes into account interest as well as additional charges you'd have to pay, such as an annual fee.
It’s important to note that the APR figure is not the “interest rate”. APR reflects the cost of borrowing over 12 months, rather than the exact period that you wish to borrow for. That’s why it can sometimes be confusing if you are looking at a loan with a shorter or longer-term duration.
Representative APR is the typical APR given to around 51% of that lender’s customers, hence the word “representative”. This may not be the APR that you are offered by the lender, which may be higher or lower. There are a number of factors which contribute to the decision the lender makes when providing a loan offer which can determine your APR, including your relationship with the lender, your detailed credit history, and current financial situation.
You might be wondering how to calculate how much the loan will cost you, particularly over a period shorter than 12 months? Lenders will show the interest rate to you before and during the application process. At MYJAR, we show the daily interest rate for all our loan durations on our homepage, and you can also generate a loan example according to the amount you want to borrow and the loan duration. The daily interest rate is exactly what you are charged for your loan for that specific loan duration and reflects the actual cost of your borrowing, subject to on-time repayment.
Credit Score / Credit History
Your credit history is an on-going personal record of your financial behaviour, detailing what you have previously borrowed and your repayment history. This can include loans, overdrafts, credit and store cards and even phone contracts and gym memberships. You may be given a “Credit Score” based on this information by the Credit Referencing Agency. Lenders may use this information, along with many other details such as income and items of expenditure to decide who they lend to. It’s important to keep this in mind when reviewing your finances, making purchases and taking out loans or other credit products.
Credit Reference Agency
A Credit Reference agency or sometimes called a Credit Reporting Agency is a company that gathers the information used for your credit history report and provides a credit score based on this information. The credit reference agency makes this information available to banks, lenders and other companies to whom you may apply for credit, including your phone provider if you take out a contract with them. We suggest checking your credit score on sites such as Experian or Noddle.
A default is when an individual fails to honour their contractual agreement with a credit provider, for example if you was to stop paying for loan repayments or if you stopped paying your credit card bill. This can have an effect on your credit score and could reduce the chances of getting credit in the future. If you think you may default on an account, make sure to contact the provider and communicate the situation with them. They are required to have processes in place to help you.