Our A to Z list is here to help you understand all the important things you need to know about loans.
Car loans are personal loans that are used to fund the purchase of a new or second hand car. They are paid directly to the customer, and are unsecured loans. This is different to car finance schemes which are paid to the car dealer, and are secured against the car.
Consumer Credit Act
This is the law that governs most personal loans and other credit products such as credit cards.
County Court Judgments (CCJs)
If someone can’t pay their debts they might face a County Court Judgment (CCJ). They will then normally have to pay the full amount owed within a month. And if this doesn’t happen, they'll be registered with the Register of County Court Judgments and the CCJ will be recorded by Credit Reference Agencies on their credit file.
This is the term used to describe the lending of money from a financial institution (such as MBNA) to an individual or a company. This means that a personal loan is a form of credit.
This file is made up of details of your current and past financial activities. Your credit file is held by three credit reference agencies: Equifax, Experian and Callcredit. When you apply for a credit product, the lender will use your credit file to help them assess your application. Your credit file will show the lender how well you've run your accounts for other credit products you may have.
This is a record of a person’s credit – such as loans and credit cards – and a history of how they were repaid.
Credit reference agency
These agencies collect and maintain details of peoples' credit records and activities such as:
- Loan and credit card applications.
- Late payments.
- Defaults and County Court Judgements.
- Good payment records.
These details are then provided to financial companies, who use them as part of their credit scoring process. This is to help these companies decide whether or not to lend money to people. There are three main UK credit reference agencies: Experian, Equifax and Callcredit.
This is a check that a lender makes with credit reference agencies to find out about a person’s borrowing and payment habits. This will usually be done when a person applies for credit with the lender. This search will appear as part of a person’s credit history.
Credit scoring is used by the lender to assess a loan application. This is then used to decide if they will lend or not. Lenders use details from a number of sources when they carry out the credit scoring process. These sources include:
- The details on the application.
- Data from a Credit Reference Agency.
- Details already held by the lender for other products held with them.
Data Protection Act
The Data Protection Act applies to all companies that handle personal information. It has a number of important rules that these companies have to comply with in matters of:
- The way that personal information is used or shared.
The Act allows a person to find out what personal information is held about them. The Act also sets out rules to make sure that this information is handled in a proper way.
Debt consolidation loan
Debt consolidation loans can be used to bring together your borrowing into a single loan. These could include other loans, store cards, overdrafts and credit cards you may have. This could help you to pay off your debts by having just one monthly repayment.
This is when a person fails to make their loan repayments and is issued with a default notice. Defaults will be recorded on their credit file and may affect their credit score in the future.
This is a person who depends on another's income to support them for the basic needs of life. For example, this could be a child, spouse or an elderly parent.
Direct Debit is a safe and quick way to make your loan repayments. The repayment amount goes out of your bank account automatically on the same date each month until the loan is paid off.
This is when you repay your loan early before the end of the loan term.
If you want to settle early, we'll give you an early settlement quote. This will include the outstanding balance on the loan and any interest that applies but has not yet been added. We will also apply an early settlement adjustment to your loan. This means that we will charge up to 58 days’ interest on the loan.
Early settlement adjustment
If you make an early settlement we will charge up to 58 days' interest.
This means the interest rate you pay on a loan, credit card or mortgage is fixed for a certain period of time. All MBNA loans have rates fixed for the entire life of the loan. This means you know exactly what your repayments will be for the term of your loan.
Good credit rating
A credit rating is worked out by a financial company when they assess a person's risk. This is based on a number of things, such as repayment history for credit products. If you have a good credit rating lenders will be more likely to offer you a loan at a lower interest rate (APR).
This is your income before any deductions have been made such as tax and National Insurance. Gross income is usually the amount people quote when they state their salary.
Home improvement loan
This is an unsecured personal loan that can be used to improve your home or property. This could include updates that could add value to your home.
Individual Voluntary Arrangement (IVA)
When someone is faced with debts they can’t pay, an IVA is a less serious option than bankruptcy. It involves making a legally binding repayment at an agreed monthly amount that the person can afford. As long as they stick to the repayment schedule then the can avoid bankruptcy proceedings.
This is the interest that’s charged on a loan – worked out as a percentage. (See also APR).
A late payment is when someone falls behind with a loan repayment. If they miss one monthly payment, or are late in making a payment, the loan will be transferred to our Collections Team and the customer will be charged a fee of £25.
This is the company who agrees to provide a loan or another credit product such as a mortgage or a credit card.
Your loan agreement is a formal contract. The agreement outlines the terms of your loan:
- The length of your loan.
- The amount you have borrowed.
- The annual interest rate and how interest is charged.
- The amount and date of each monthly repayment.
The loan agreement is confirmation that you agree to its terms and conditions.
A loan calculator can help you work out what your repayments would be for a chosen loan amount and repayment term. It will also tell you what the APR will be and can help you decide:
- How long you would want the loan period to be.
- How much you can afford to borrow.
This is the length of time over which you agree to repay the loan. So if you take a loan with a term of two years and you make the repayments on time, at the end of that period, the loan and any interest is completely paid off.
This is the total amount you agree to pay back each month including the initial loan amount plus interest. The monthly loan repayments will come out of your bank account each month by Direct Debit.
This means money is borrowed by an individual and not by a business. If you apply for a personal loan, the amount you’re offered will depend on your income, existing debt, and credit history. A personal loan can be used for a number of reasons. These could include home improvement, a car, debt consolidation, travel. There are some things that you're not allowed to use a loan for, such as gambling or for buying land or property.
When you get a quote for a specific loan, it will have details about:
- The monthly repayments.
- The total amount to be repaid.
A repayment holiday means that you would take a break from your regular monthly loan repayment, for one month. This repayment will then be added to the end of your loan and more interest charged as a result. You may take no more than 2 repayment holidays in a 12 month period. These are subject to status.
This is the monthly amount you agree to repay when you take out the loan. Once the loan has been completely repaid, you'll no longer need to make any repayments.
The representative APR can help you to compare one loan against another. You can do this to see which is better value. It is worked out by looking at the rate 51% of customers are expected to get when they apply for a credit product that they've seen advertised.
This is the figure provided to you if you want to pay off your loan early. It may not be the same as the amount you see on your latest statement because of any interest yet to be added.
This is when an application is made by one person. That person will be solely responsible for repaying all of the loan.
This is the length of time over which you agree to repay the loan. See also ‘Loan term’.
Total amount payable
This is the total amount you will have to repay on a loan. It is based on the amount of the loan, the length of time you are repaying it (also known as the term) and rate of interest on the loan.
An unsecured loan is when a person doesn't have to use their home or other asset to ‘secure’ the money they are lent. This means that if they default on the loan, their home or other asset would not be under threat.
This is when the interest rate you're charged goes up or down. This means that your monthly interest payments could change as a result. All our loans have a fixed interest rate, so your monthly interest payments won't change over the term of the loan.
These are when you pay more than your required monthly repayments. If you make an additional payment, we will apply this to your loan. This will then reduce the total amount of interest you pay over the term of your loan and may reduce your loan term.
A person with adverse credit has been identified as being high risk in the eyes of financial service organisations. This could be for a number of reasons such as:
- They have a County Court Judgement (CCJ) against them.
- They have defaulted on a loan.
- They have a history of missing payments on their debts.
Annual Percentage Rate (APR)
APR stands for Annual Percentage Rate. In a nutshell, it’s the total cost of your borrowing over the course of a year. It includes the interest charged, any fees you’re charged and how often the interest is charged. This is what you’ll pay on top of the money borrowed.
You’ll find APRs are shown as a percentage. This makes it easier to compare the different rates offered by lenders. All lenders are legally required to calculate their APR based on the same rules to help you weigh up your options.
This is when someone’s debt problems get so serious, they are unable to pay their existing debts and bills. When this happens, it’s possible to apply to a court to be made bankrupt. This means that any assets you have such as savings will be used to pay off your debts. Normally after one year a person will be discharged from bankruptcy. But it will still have a negative impact on their credit rating and may stop them getting credit in the future.
Base rate/Bank rate
This is the interest rate set by the Bank of England for lending money to other banks. The effect the base rate will have on most customers will be linked to products that track it, and will have variable interest rates. If your loan has a fixed interest rate, then any changes to base rate will not impact your loan. All MBNA loans have rates fixed for the entire life of the loan.