Explaining Personal Loans Jargon

By Martin Sumner

Like all industries, the financial services business has developed a sometimes mystifying range of jargon to describe aspects of the products they provide. Much of it is only of interest to financial advisors, but some of it is helpful to consumers when they're looking to take out a loan or other financial service.

APR

APR stands for Annual Percentage Rate and is the standardised measure of how expensive a loan is to take out. It is calculated in various ways, making direct comparisons sometimes difficult, but is intended to allow a side by side comparison of loan deals by taking into account not only the interest rate charged, but any additional costs such as set up fees.

Advance

The advance of a loan is simply the amount of money borrowed.

Collateral / Security

The security on a loan is something of value which, if you fall behind on repayments, the lender has the option of seizing and using to clear the debt. The most common security or collateral is your home, in the case of a mortgage or secured loan, but other sizable assets can also be used.

HLC

HLC stands for Higher Lending Charge, and is a fee imposed by some mortgage lenders when you wish to borrow more than 90% of what your home is worth.

LTV

LTV is short for Loan to Value, which is a measure of the size of your loan in comparison to the value of the property it's secured on. It is calculated as a percentage, thus if you wanted a loan of 80,000 and your house was worth 100,000 then the LTV would be 80%. LTV is an important figure, as the lower it is, the better the loan deal you can expect to be offered.

Sub Prime

Sub Prime is a euphemism for bad credit.

Term

The term of a loan is simply how long it will take to pay off if the agreed repayment schedule is followed.

About the author: Martin is a writer and credit broker specialising in tenant loans and other aspects of financial services.