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Glossary of financial terms

 In Articles, Money

This is a glossary of terms referenced in the consumer finance world to help you understand your credit and borrowing options better. If you do not see a term in the glossary and feel it should be added, please contact us here and we’ll be happy to include it within an updated version

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Amortisation: The process of gradually decreasing the amount of debt by regularly meeting repayments over time. This process can also be referred to as the depreciation of debt.

Annual Fee: A fee charged by your creditor for use of the account or service. An annual fee is associated most commonly with the use of credit cards.

Annual Percentage Rate (APR): The interest charged on your debt, expressed as a 12-month rate. A useful metric to use when comparing long-term credit borrowing. For short-term loans, the APR will seem excessive and you are advised to compare the overall cost of borrowing rather than the APR.

Application Fee: The cost of submitting an application for credit. An application fee is more commonly seen in mortgage lending and not typically charged on smaller loan amounts.

Appraisal Value: An educated estimate on the value of a property or possession. An appraisal of your assets will be done on all secured lending/asset-based lending.

Asset: A possession or property owned by the customer that has cash value. Assets are used as collateral in secured lending. Assets usually accepted by lenders include vehicles, boats, jewellery, antiques and artwork.

Authorised User: Anyone you have approved to use your line of credit. Often with credit cards, an authorized user will have access to the credit line and/or credit card with their name on it under the same account.

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Balance Transfer: The process of moving all or some of an outstanding balance from one credit card on to another.

Bankruptcy: A legal proceeding that excuses a person from repaying all or part of their existing debts due to being unable to meet repayments and experiencing over-indebtedness. Bankruptcy should be viewed as your last option and it will have detrimental effects on your credit score and your likelihood of being accepted for a line of credit in the future.

Borrower: The person requesting the loan and responsible for repayments

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Cardholder: The person issued the credit card and/or authorised users.

Cash Advance: A cash loan requested from your creditor through an ATM or use of a paycheck. Usually offered as a line of credit on credit cards that comes with a unique set of charges.

Collateral: Asset or property used as security against a loan. The lender will take control and ownership of the collateral if the loan is not repaid.

Collections: A creditor may sell your debt book to a collections agency to recuperate a proportion of the amount owed. A collections record will remain on your credit report for a number of years.

Credit Bureaus: A company that collects information relating to the credit ratings of individuals and makes it available to lenders and credit card issuers. The main credit bureaus in South Africa include; Experian, Transunion, XDS and Compuscan.

Credit Report: A record of consumer financial behaviour that is kept on an individual by a credit bureau. The credit report will include the following information; full name, age, residential address history, employment history, loan and credit behaviour history including default repayments and bankruptcy filings.

Credit Score: A number formulated from an individual’s credit report by the credit bureau that provides a high-level evaluation of the credit risk of the borrower (whether you a likely to meet repayments). A credit score usually ranges from 350-800, with a good credit rating being 650+

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Debt: An amount of money owed by the borrower.

Debt Consolidation: The process of combining all existing debts into one repayment plan. The process can be done individually (e.g. taking out a personal loan to consolidate your credit card debt) or through the use of a debt counsellor.

Debt Counselling: A professional service offered by licensed debt counselling agencies who negotiate new repayments terms over a longer period of time with your creditors to reduce your monthly payment amount and make your debt more manageable. A debt counselling agency can also negotiate a debt settlement with your creditor in extreme cases, meaning the amount of your debt is reduced.

Default: A status on a debt account that indicates the debt has not been repaid. A loan account will go into ‘default’ if a repayment is missed.

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