Loans Glossary
Clear, plain-English definitions for the most common loan terms in the UK.
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County Court Judgment (CCJ)
A court order registered against you if you fail to repay a debt. A CCJ severely damages your credit score and remains on your credit file for six years, making it very difficult to obtain mainstream credit.
Debt Consolidation
Taking out a single new loan to pay off multiple existing debts (such as credit cards and smaller loans). This simplifies your finances into one monthly payment and can reduce the overall interest rate you pay.
Early Repayment Charge (ERC)
A penalty fee charged by the lender if you choose to pay off your loan before the agreed term ends. This compensates the lender for the interest they expected to earn.
Fixed-Rate Loan
A loan where the interest rate remains the same for the entire duration of the term. Your monthly repayments will never change, providing certainty for budgeting.
Guarantor Loan
A type of unsecured loan that requires a second person (the guarantor, usually a family member or friend) to co-sign the agreement. The guarantor becomes legally responsible for repaying the loan if the primary borrower defaults.
Individual Voluntary Arrangement (IVA)
A formal, legally binding agreement between you and your creditors to pay back your debts over a set period. It is an alternative to bankruptcy and stays on your credit file for six years.
Overpayment
Paying more than your agreed monthly loan repayment. Overpaying reduces the principal balance faster, saving you money on interest and shortening the overall term of the loan.
Payday Loan
A short-term, high-cost loan designed to tide you over until your next payday. They carry extremely high APRs and are viewed negatively by mainstream lenders when they appear on your credit report.
Personal Loan (Unsecured Loan)
A loan that is not backed by an asset (like your home). The lender relies entirely on your credit history and income to assess the risk. If you default, the lender must go through the courts to recover the money.
Secured Loan (Homeowner Loan)
A loan where you pledge an asset (usually your home) as collateral. This allows you to borrow larger amounts at lower rates, but your home may be repossessed if you fail to keep up with the repayments.
Term
The length of time over which you agree to repay the loan. A longer term means lower monthly payments but results in you paying more total interest over the life of the loan.
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