Understanding banking and financial terminology

A card that deducts money directly from your bank account when making a purchase.

Key points:

• No debt is incurred
• Can only spend funds available in your account
• Safer than carrying large amounts of cash

A card that allows you to buy goods and services with a promise to pay later.

Key points:

• Issuer provides a line of credit up to a set limit
• Regular payments are required; interest is charged on unpaid balances
• Offers protection under the Consumer Credit Act- you may be able to claim your money back if something goes wrong with your purchase
• Useful but can lead to debt if not managed properly

Similar to a credit card but specific to a store, offering benefits like discounts or points.

Key points:

• Higher interest rates than credit cards
• Can lead to significant debt if not paid off promptly
• Regular payments must be made but you are not normally required to pay the full balance

An enquiry into your credit history by lenders when you apply for credit.

Key points:

• Important to maintain a clean credit file
• Affects your ability to obtain loans

If you would like guidance on how to check and understand your credit report, check our further advice and resources.

An instruction allowing a company to withdraw payments from your account regularly.

Key points:

• Helps avoid late payment fees
• Requires careful tracking to maintain control over finances

To help you manage your money, we advise reading our tips in Top tips on managing your money during your studies.

A regular, fixed payment made from your account to another specified account.

Key points:

• Ideal for recurring bills like rent
• Ensures timely payments, avoiding late fees

Standing orders can appear very similar to Direct Debits – to understand the difference read The Money Advice Service - Direct Debits and standing orders.

A machine that allows cash withdrawals using a debit or credit card.

Key points:

• ATM stands for ‘Automated Teller Machine’
• May charge fees; avoid those that do by checking the screening before proceeding
• Convenient for accessing cash

A simple bank account with essential features such as:

• Employers may pay salaries directly into them
• Government benefits may be paid directly into them
• Cheques and cash may be paid into them
• Account holders may pay bills by direct debit
• Cash may be withdrawn from cash machines
• The accounts don’t have overdrafts (but increasingly they are offered with small buffer zones of £50- £100 depending on the bank)
• All money held in the accounts may be withdrawn

Key points:

• Salaries and benefits can be paid directly into it
• No overdraft, but may have a small buffer zone
• Suitable for those with poor or no credit history, such as international students

If you’re an international student and would like more guidance on banking in the UK, read our article Opening a UK bank account as an international student.

Allows borrowing up to a pre-agreed limit on a bank account.

Key points:

• High charges for exceeding the limit
• Shop around for the best rates

Important to know: Remember to look beyond these initial incentives to see the overall package being offered, and carefully check the terms for repayment. Find out more about choosing and opening bank accounts in How can I open a bank account?

Failure to meet a financial commitment.

Key points:

• Recorded on your credit file, affecting future lending
• Contact creditors if you anticipate payment issues to avoid defaults

A court decision for unpaid debts.

Key points:

• CCJ stands for ‘County Court Judgement’
• If you pay off the debt, a note is put on your credit file to say the CCJ is satisfied
• Stays on your credit file for six years
• Affects borrowing ability

If you are being threatened with action which may lead to a CCJ always seek advice.

The interest rate set by the Bank of England, on which other banks base their rates.

Key points:

• Affects variable rate loans and mortgages
• Consider potential rate increases when borrowing. Can you afford to continue monthly payments if interest rates rise by 1% or more?

The total cost of borrowing, including all fees.

Key points:

• Stands for 'Annual Percentage Rate’
• Represents true borrowing costs
• Be wary of rates not described as APR, as there may be additional fees

Fees for repaying a loan early.

Key points:

• Covers administration costs
• Terms should be clearly stated in your loan agreement

A credit method where you hire an item and pay in instalments, plus interest.

Key points:

• Stands for ‘HP Purchase’
• Ownership transfers after the final payment
• Non-payment can result in the return of goods

If you would like to find out about this type of payment and how it works, the Citizens Advice Bureau offer more detail in Hire purchase and conditional sale.

A mortgage where payments cover both the loan amount and interest.

Key points:

• Also known as a 'capital and interest' mortgage
• Ensures the full loan amount is repaid by the end of the term
• Shop around for the best mortgage options