Glossary

Annual Percentage Rate (APR)

APR or Annual Percentage Rate is a summary figure for comparing debt costs which brings together interest rates and other charges.

Assets

Everything that a person owns that has a monetary value (e.g. property, investments or cash).

Compounding

The process by which interest repayments are added to the original amount borrowed to give a higher total figure which, in turn, attracts interest rate charges.

Credit

An arrangement to receive cash, goods or services now and to pay for them in the future.

Cyclical

A recurring pattern of a variable over time showing peaks and low points at regular intervals.

Equity

Equity in a property is the excess of the market value of the property over the outstanding mortgage debt secured against it.

Equity withdrawal

The process whereby mortgage levels are increased to release funds for additional spending.

Interest

The charge a borrower pays for the use of someone else’s money.

Interest rate

The exact price that a borrower pays for debt, normally expressed as an annual percentage.

Liability

An amount of money owed at a particular point in time.

Mortgage

A loan secured on property or land.

Net worth/net wealth

The value of all assets minus all liabilities.

Overdraft

A facility provided by banks and some building societies which allows customers to go into debt on their current account.

Principal sum (or capital sum)

The original amount of debt taken out.

Secured debt

Debt secured against an asset such as a home. If the debtor fails to make adequate repayments, the lender has a right to obtain money by selling the asset.

Term

The period of time over which a debt is to be repaid.

Unsecured debt

Debt not backed by any asset.