Personal Finance Glossary

Agreed, authorised overdraft
A facility offered by banks on current accounts which allows the balance of the account to go overdrawn by an agreed amount, charges for the facility and interest rates for the overdraft will apply. An unauthorised overdraft is when the account balance is allowed to go overdrawn without the prior agreement of the Bank, significantly higher charges and interest rates apply in these cases.

Annual percentage rate (APR)
Term used in relation to a loan or credit, it relates to the overall interest rate you will pay each year for the loan or credit, taking into account the term of the loan, the interest rate and other costs. An APR may be different to a monthly interest rate advertised for a loan. This can also be referred to as an EAR - Equivalent Annual Rate or AER - Annual Equivalent Rate.

Annual statement
A written summary report provided for loans such as mortgages, and investments such as savings accounts and pensions, showing what you’ve paid, what is still owing if it’s a loan, and any charges that have been applied since the previous statement.

An agreement or contract that can be purchased using a one off payment or a series of instalments, where a person or a company, usually a life insurance company (but it can also be a charity or a Trust) agrees to pay another person, the annuitant, a series of income payments. There are various types of annuities available, these include pension annuities and lifestyle annuities.

In relation to personal finances an asset is anything of value that is owned by an individual. Examples are cash, computer equipment, cars, real estate, personal property and other investments, which could potentially be used or sold to pay debts.


An agent who buys or sells for another person or company in exchange for a commission. A tied broker is an agent who sells particular financial products on behalf of one or more specific companies. An independent broker is not tied to one particular brand or company and can sell products from across the marketplace.

The word budget comes from an old French word bougette, which means purse. It is usually a list of all planned expenses and income, it is a way of recording a plan for saving and spending.

Buy to let

This can refer to either a type of investment strategy where a residential property is bought specifically for the purpose of letting it out; or to buy to let mortgages which are a type of mortgage product used to purchase a property for letting.

Either a cash lump sum or the the amount you borrow as a loan, for example to buy a house.

Card issuer
The name of the Bank or finance company that appears on your credit cards and debit cards.

Cash back
A type of facility or incentive which enables an individual to get a cash amount as a result of a transaction. Cash back transaction types can include earning cash rebates on online purchases, adding an additional amount to wihdraw from a debit card when paying for goods, being paid a small amount by a credit card company for each use of a credit card, offering money to entice potential customers to choose a particular mobile phone service plan and a type of mortgage product which offers a lump sum to a new borrower at the beginning of the mortgage term.

Child trust fund

A Child Trust Fund (CTF) is a long-term savings or investment account for children in the United Kingdom, the Child Trust Funds are due to be wound up in January 2011.

Chip and PIN

A chip is an electronic micro chip inserted into credit or debit cards for security purposes. PIN stands for Personal Identification Number which only the card holder knows and is entered when the credit or debit card is used, to prevent someone else using the card fraudulently.


A codicil is a document that amends a previously executed (current) will, it does not replace existing wills. A codicil can add or remove small provisions in a will (e.g., changing executors), or can completely change the majority, or all, of the gifts under the will.


A fee paid to an agent, such as a mortgage broker, insurance sales person or financial adviser for services rendered. The commission fee is usually a percentage of the personal finance products sold by the agent. Agents and advisers can be tied to several product providers and receive commission from one or all of them.


A specialist lawyer who specialises in the legal aspects of buying and selling property, otherwise known as conveyancing. A conveyancer can also be a solicitor, licensed conveyancer, or a fellow of the Institute of Legal Executives.

County Court Judgement

This is an order from a County Court (or higher court) in England or Wales (Scotland has a different system) ordering an individual to repay a bad debt, in weekly or monthly instalments. County Court Judgements are recorded on individuals’ Credit Reports and will show up during credit checks, and can count against people when they apply for a mortgage or other lending.

Credit card

A credit card is a type of unsecured flexible loan. A credit card provides access to funds up to a pre-agreed credit limit, credit card charges and interest rates apply depending how much credit you use and for how long. Minimum repayments are required to be paid back onto the credit card each month. Most credit cards can be used in shops and other outlets to buy goods and services both locally and internationally.

Credit scoring, credit rating, credit report

A numerical score given to individuals based on their previous credit and banking history. Credit scores are held centrally and can be accessed by finance companies to help them assess whether or not to approve lending or credit and to set credit limits. Individuals can view their own credit scores through companies like Credit scores go up and down as an individuals’ credit history improves or worsens.

Debt consolidation

The act of taking out one new loan to pay off many other existing loans. This is done to either secure a lower interest rate, secure a fixed interest rate or to service only one loan.


Used in relation to buying a house, a deposit is the amount of money you already have saved to put towards the cost of the home, most lenders require borrowers to have a deposit before they can apply for a mortgage.

Direct Debit
A method of making regular payments to someone directly from your bank account on an agreed date, for example to make loan repayments or pay bills. A direct debit form is provided by the company you wish to make payments to, which you complete and give to your bank to set up.

Early settlement, early repayment

The process of repaying a loan or debt earlier than the agreed repayment term. Some lenders apply early settlement or early repayment charges to offset any lost interest charges.

Endowment policy

A type of investment plan which is paid into monthly and pays out a lump sum after a fixed number of years, can be used in conjunction with a mortgage to repay the mortgage upon maturity of the endowment policy.

Estate planning

Estate planning is the process of anticipating and arranging for the disposal of an individuals’ estate (i.e. all possessions, including property and debts) when they die. Estate planning can eliminate uncertainties and maximize the value of the estate by reducing taxes (tax planning) and expenses. Estate planning also includes allocating guardians for minor children and incapacitated beneficiaries.

Equity release

Equity release is a term used to describe the process of unlocking some of the value (equity) held in a home and allowing the home’s owners to turn this equity value into a source of income, without having to sell, or move out of, their home. Also known as home reversion.

Exchange rate, rate of exchange

This is the charge made by Banks or foreign exchange bureaus to exchange currency from one country to another, i.e. the rate charged to buy and sell foreign currency.

An individual or a company who are named in a will to act as the legal representative to handle a deceased's estate.


An expense or expenditure is money paid to another person or company to pay for an item or service.

Financial goals, savings goals
A financial or savings goal is the desire to generate enough money to pay for a specific event, or way of life, that you’d like to achieve within a certain time frame. Financial and savings goals can be short or long term. For example, a short term goal could be to clear your credit card debt within the next 3 months; a long term goal could be to save enough for a deposit on a house by the time you are 25, or be able to afford to retire comfortably at age 55.

Financial planning
A process used to enable an individual to achieve their future financial goals. A financial plan can be in the form of a budget, allocating income to various types of expenses, such as housing or bills, and saving some income for short-term and long-term savings goals. Financial planning can also include investment plans, which allocate savings to things like shares or property or collectables which are expected to produce income in the future, i.e. retirement planning.

Financial planner, financial adviser

A professionally qualified expert who can provide financial advice and assistance to an individual or family, taking into account their situation, to help them meet their financial needs and life goals. Can include providing strategies for investments, tax planning, retirement planning and estate planning.

Financial Services Authority (FSA)

An Agency assigned by the UK Treasury to regulate the UK financial industry, including banking, mortgages and general insurance. Introduced in 1997 to take over from the Securities Investment Board and the Self Regulating Organisations (SROs).

Handling charge

A charge sometimes made by personal finance product providers to set up or transfer a policy or loan or pension agreement for example, to cover administration costs.

Hire purchase

Refers to a way of purchasing an item such as a car or computer, over a period of time, for little or no upfront cost. The buyer can take immediate possession of the item in return for paying regular installments for a fixed amount of time (can be several months or years). The purchaser doesn’t take legal ownership of the item until the final instalment amount has been paid.

Interest, interest rate
The amount a lender charges to lend you money or the amount you will be paid when you invest savings. An interest rate is the percentage rate you will be charged or will earn, i.e. a 2% savings interest rate means you will gain 2% of your savings back as interest.

Investment, investment performance
The allocation of money to buy assets in order to gain profitable returns in the form of interest, income, or an increase in the value of the asset. Investment performance describes the way an investment has done, what its losses or gains were over a certain period of time.


Stands for Individual Savings Accounts. A type of tax-free savings account launched in April 1999 in the UK, allowing for personal investment in stocks and shares, cash deposits and life insurance up to certain limits each tax year.

Key facts, key features

Documents provided by finance companies such as lenders and investment companies to consumers, containing important information about the company’s services and specific product features, disclosing relevant charges, terms and conditions. Also known as a Summary Box.

Letting agent

An individual or company that locates and checks rental tenants, and facilitates the agreement between a landlord and tenant for the rental of a residential property. A letting agency normally charges a commission for their services, usually a percentage of the annual rent. Letting agents sometimes operate within an Estate Agents office due to the synergies that exist between the two professions, but there are many agents that just deal exclusively with lettings.

Loan to value ratio (LTV)

The amount of money a lender is prepared to lend on a property in relation to it’s value, expressed as a percentage. For example, if a borrower wants to buy a house worth £200,000 but only needs to borrow £100,000 their LTV would be 50%, i.e. they need to borrow 50% of the property’s value. Different lending interest rates may apply depending on your LTV.


In personal finance terms a liability is an existing debt that is owed to someone else, for example a loan that is still being paid off is a liability until it is repaid in full.


A mortgage is a specific type of loan, provided by a bank, mortgage company or other finance company, that helps you buy or build a residential or commercial property. The property is then used to secure the loan until it is repaid. When a property is used as security against a loan it means the lender can repossess the property and sell it to repay the loan if loan repayments are not kept up to date.

Net income

An individual’s or a Company’s income after all expenses (i.e. NI contributions, student loan deductions etc) and taxes have been deducted.

Net worth

The value of an individual's assets (i.e. property or objects of value) minus their liabilities (financial obligations and debts owed to someone).

Offshore savings account

A type of savings account which allows individuals to save a lump sum or regular savings amounts in a country other than the one they live in. There are some different types of savings accounts which can offer higher interest rates and enables interest to be earned gross and tax only has to be paid on it annually, which increases the compound interest.

Pay day loan
Pay day loans are a small, short-term loan offered by a finance company to cover the borrower's temporary expenses until their next payday, at which point the loan is paid back.

Pension, pension scheme, retirement plan

This is a long term financial arrangement where regular contributions are made into an investment scheme to accumulate a pension fund that eventually provides a regular income on retirement.

Power of attorney

A lasting power of attorney (POA) is a written legal document made by an individual (the Donor) which authorises another person to act on their behalf (the Attorney) i.e. manage bank accounts, property and other assets.


A term used to describe an amount of money, either an amount borrowed from a lender or a lump sum invested by an investor.

The legal process of verifying the legality of a will, or a copy of a legally recognised and qualified will.

Redemption statement

A written statement issued by a mortgage lender, detailing the outstanding amount and any charges due, that must be paid in order to fully repay a mortgage or loan secured against a property. Usually requested by conveyancing solicitors acting on behalf of someone selling or remortgaging their property.


A term used to describe the process of taking out a new mortgage on a property even though the property is not being sold. Remortgaging is usually done to obtain lower monthly payments from another lender, the new mortgage on the property repays the existing mortgage lender. Or, if there is sufficient equity in the property, to raise money for a number of purposes such as home improvements. See also Remortgage advice - useful terms.

Repayment mortgage

A type of mortgage where the loan amount (capital/principle) and interest are repaid at the same time.

Retirement planning

Retirement planning is the process of identifying what an individual wants to have in place for when they retire (retirement goals), i.e. sufficient income and a comfortable lifestyle; and then taking the appropriate financial steps to ensure these retirement goals can be met.

Savings return, rate of return, investment return

The amount of income and/or change in value created or expected on an investment, usually expressed as a percentage of that investment. The profit or loss resulting from the investment.


A share, also known as equity capital, is when money is given to a company in exchange for a stake in the ownership of the business. The value of the company is divided into equal shares, the shareholders collectively own the company. Each shareholder is entitled to a proportion of the company’s profits, or if the company is sold, a proportion of its assets.

Stakeholder account

A stakeholder account is part of a scheme introduced by the UK Government to simplify savings products. Savings products that fall into the scheme are simple to understand, charges are explained upfront and are usually capped at a certain lower percentage rate than other types of savings products. Examples of stakeholder accounts are: cash ISAs, basic savings accounts, stocks and shares ISAs, share invested child trust funds and some UK pensions.

Student loan

This can relate to several types of financial assistance available to students to help support themselves while they are studying, to assist with living and accommodation expenses and course fees and related costs. The most common type of student loan in the UK are those offered by the Government through The Student Loans Company (SLC).

Sub-prime lender

Sub-prime lenders specialise in offering loans or credit to people with poor credit ratings.

Summary Box

Refer to Key facts, key features definition.

Surrender value

The actual cash value of an endowment policy if it was cancelled or ‘surrendered’ before it was due to finish or mature.

A type of report done by a qualified surveyor on a property to confirm the condition of the property, usually done before a property is purchased, and sometimes required as a condition when you apply for a mortgage.


The length of time a loan or investment has been set up for, usually given in months or years.

Total amount repayable (TAR)
Term used in relation to a loan or credit, it relates to what the loan will cost you each month, or year, to pay back including principle, interest and applicable charges.

Trust, family trust, living trust

A trust is a legal way of indirectly giving something you own to somebody else. Trusts provide tax and other advantages to individuals and companies. A trust is a legal contract which you (the settlor) uses to hand responsibility for managing one or more of your assets, to a group of people or a company (the trustees) who then distribute these assets to nominated friends or family (the beneficiaries). While the settlor is alive they retain their right to the assets and are able to amend or cancel the trust. When the settlor dies, the trust becomes irrevocable and becomes a form of will.


An inspection or a report made on a property to determine it’s market value, or a cash value applied to a pension or investment at any given time during it’s term. Can also be used to refer to a document that details the value of an investment such as a pension or endowment policy.

Will, living will

A Will is a legal document declaring a person's wishes regarding the disposal of their property and belongings when they die. A living will, also known as an advance health care directive, advance directive or advance decision, is a set of instructions given by a person specifying what actions they want taken in relation to health treatment, in the event that they are no longer able to make decisions due to illness or incapacity, i.e. if they develop dementia.