To really get to grips with how borrowing money works, it’s good to start with understanding all the phrases used.
Borrowing can be complex, but should be made much simpler with this word list. If you want to be a real guru, there’s even more information in our borrowing money guide.
Affordability assessment An affordability assessment is used by all kinds of lenders to assess whether you can afford to make repayments on the amount you have requested, or pay back the amount you say you will.
When it comes to Provident, this is carried out by your Agent every time you apply for a loan. It will happen when they come to your home to discuss your loan requirements. Your Agent will consider all sources of income including payments from your employer, any self-employed income, benefits and pensions.
You can find more detail about our how we do them here.
APR (Annual Percentage Rate) APR stands for Annual Percentage Rate of Charge and shows how much the loan will cost in full. The APR includes not only interest charges but all fees included in the loan repayments such as broker fees and insurance. It was created as a way to help consumers compare the cost of borrowing and to give them an idea on the true cost of the loan.
APR is calculated on a yearly basis. As short term loans are taken out over a shorter period, their APR will therefore look higher. Weekly repayment loans like ours may look less favourable compared to other lenders’ credit products when just using the APR as a comparison.
The APR rate advertised should be the APR rate which at least 51% of people who respond to the advert receive. To find out more about APRs, click here.
Representative APR A Representative APR means that the majority of customers (i.e. at least 51%) will receive this APR rate, but some may be different, depending on their credit rating and individual circumstances.
Borrower In financial terms, a borrower is someone who receives a certain amount of money from a lender, with the agreement they’ll pay it back.
Consolidate a Loan This is where you owe money to different lenders and take out a loan big enough to pay off all of them in one go. As you only owe money to one lender, you’ve effectively combined or consolidated all the loans into one. At Provident, our loans are not suitable to be used as consolidation loans.
Continuous Payment Authority (CPA) A continuous payment authority is when you give a company permission to go into your account and take money to repay a subscription or a loan, on specific terms of access. We’ve got more information on them here.
Interest Interest is a fee charged by a lender to a borrower for borrowing money. When you borrow money, the lender is then out of pocket. Also the lender has to pay for the maintenance of the business establishment and staff etc. To do this, they charge you a certain rate which is added to your repayments. Interest rates vary a lot, so it’s important to shop around before deciding on a credit product.
Lender A credit lender can be a bank, a personal loan company, a home credit company or anyone who makes funds available for others to borrow.
Lenders need to be authorised by the Financial Conduct Authority, you can check if your lender is, here. If you have borrowed from a lender who is not authorised, it is the lender who has broken the law, not you.
You should never borrow money from a lender unless they are licensed and you receive a written agreement.
Loan Broker Loan brokers are not the same as credit lenders. Brokers offer to help customers find the best loan for them on their behalf, which is why they could charge a membership or brokerage fees. Loan brokers take your details and contact credit lenders on your behalf. They are not lenders themselves.
Provident do not work with brokers who charge fees. To learn more, click here.
Personal Loan A personal loan is a cash loan which is used for personal reasons such as a home repair, as opposed to using it for business purposes. Often, it’s used as another term for an unsecured loan.
Repayment When you give a company back a portion of the amount you have borrowed money from them, that’s called a repayment.
Repayment Schedule This is simply an outline of how much of your loan you’ll repay and how often. With a loan from us, your Agent will discuss your repayment schedule with you when applying for your loan.
Secured Loan A secured loan is when you borrow money against something you own, like a house or car, as security for getting it. If you can’t pay back the entire loan amount, it gives the lender the right to take ownership of whichever possession you secured the loan against and sell it on. Because of that, your credit score is generally less of a factor in deciding whether to lend to you.
Unsecured Loan An unsecured loan is a type of borrowing where you don’t put up anything you own in order to get money. Instead, a lender will generally use your credit score as a guide for deciding on whether to let you borrow money. The trade-off for not risking something you own being repossessed, like with a secured loan, is usually being charged a higher interest rate.
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