But do you actually know what all the technical jargon means? The finance world is full to the brim with specialist, industrial terminology. From APR and attorney to excess and gross interest, it is no wonder why so many people get confused when it comes to finances!
However, you don’t have to be Einstein to understand what all the terms mean. It would be a lot more helpful if companies didn’t use such complex vocabulary, but help is at hand.
It is crucial that you understand what all these words and phrases insinuate. If you don’t fully know their connotation, you could be losing your hard-earned cash. Here are 7 key terms debunked:
Otherwise called Annual Percentage Rate of charge, this is the average yearly cost of having a credit card or loan. It includes the fees and interest rate charged, and it is usually calculated on a set rate.
It differs from bank to bank and from month to month; for example, NatWest might offer a 0% APR credit card for 15 months, which means the consumer can make purchases and not get charged a penny, for that duration of time.
This is a person who is given the legal power to manager a person’s affairs on their behalf. So before a person dies, they appoint an attorney to ensure all their finances are taken care of, when they are gone.
This is the main interest rate set by the Bank of England for the economy. It is the sole factor that other rates are based on, like shares and bonds, and it sets the rate in which the Bank of England is prepared to lend money to financial institutions.
This affects the interest rates commercial banks set to you the consumer, for your savings and borrowings.
This is quite similar to ‘attorney’ in that a person is named in a life insurance policy as the benefiter, upon the death of the person insured. This means that they receive all the insurance money.
This is interest paid before tax is taken off. If you have a savings account, you will receive annual gross interest, which is paid before the reduction of rate tax.
This is a type of mortgage in which you only pay the interest charge each month. So the loan that you have been given to purchase your house does not get reduced, but rather just the interest each month.
Therefore, you need to repay the amount owed (capital) some other way.
Payment protection insurance
You might have heard the term PPI being used a lot lately. This was an insurance contract that was sold to consumers to cover themselves financially, if for some reason they couldn’t work for health reasons or redundancy. Otherwise called accident, sickness and unemployment cover, it paid out a regular income to cover outgoings like loan repayments.
However, many consumers were mis-sold the policy and therefore are claiming back their money.
The majority of these official terms have been gathered from the Money Advice Service but if there is anything else you are not sure about, there are various resources like MoneySavingExpert.com and your local Citizen Advice Bureau.
If you are self-employed, it is even more important that you know what certain financial terms mean.
This article was written by Nixon Williams, the leading specialists in freelancer accountancy.
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Category: Money Basics