Consumer credit glossary
A collection of key terminology in the field of consumer credit.
Advertising - Advertising is a means of communication designed to attract and persuade. Credit providers use advertising to entice potential customers. It can include anything from promotional materials such as leaflets, posters, TV/radio to online adverts and more. If a credit provider mentions the interest rate or any figures related to the cost of credit, then they have to provide you with a representative example.
Annual Percentage Rate of Charge (APR) – This percentage represents the total cost of the credit to the consumer, expressed as an annual percentage of the total amount of credit. The APR includes all associated costs such as interest, commission fees, taxes and any other kinds of fees.
Assignment of rights – The assignment of rights refers to the transfer of rights from one party to another (from the assignor to the assignee). If the creditor decides to assign his/her rights outlined in a credit agreement to a third party, this action must not influence your rights or the terms of the agreement.
Borrowing rate – This is the interest rate you have to pay on an annual basis to borrow a certain amount of money.
Creditor – A creditor is a person or company that grants or promises to grant you credit in the course of his/her trade, business or profession. It is the opposite of ‘debtor’, and is often interchangeably used with the terms ‘lender’ or ‘credit provider’.
Creditworthiness assessment – A creditworthiness assessment is the evaluation of your (the consumer's) ability to pay back the money you intend to borrow. It can be based on information you provide and/or by checking relevant databases.
Creditworthiness database – A creditworthiness database is a central source of data that allows a credit provider to assess your creditworthiness. The information included in such a database varies from country to country, but it often includes information about previous problems with repaying credit.
Consumer – A person who buys products or services for personal use i.e. for purposes outside his/her trade, business or profession.
Credit agreement – A credit agreement is an agreement whereby one party – the creditor – grants or promises to grant credit to another party – the debtor. In other words you (the borrower) can sign a credit agreement with a provider of credit (the creditor or lender).
Cosignatory – A cosignatory is a person (or persons) who jointly signs a legal document such as a credit agreement together with others. The cosignatory has a legal obligation to make payments to cover your debt should you be unable to pay (default).
Credit card – A credit card is a means of payment, which takes the form of a plastic card, issued by financial companies, retail stores, and other businesses. It offers the holder the possibility to borrow funds, often at the point of sale.
Credit intermediary – A credit intermediary is a person or a company which performs certain tasks without acting as a creditor. This could include presenting or offering you credit agreements, helping you with the preparation of an agreement, or concluding credit agreements with you on behalf of the creditor. The intermediary acts within the framework of his/her professional activity and for a fee.
Debtor – A debtor is a person who owes money to another person or company. The opposite of ‘creditor’. Often interchangeably used with the term ‘borrower’.
Debit card – A debit card is a plastic card, usually issued by a bank and linked to an account, that allows the bearer electronic access to his/her bank account. In contrast with a credit card, payments made using a debit card are immediately debited from the bearer’s account.
Debt conversion –Debt conversion refers to the process of amending the conditions regarding the pay-back of a loan by reducing the monthly payments and extending the period of repayment.
Deferment of payment – A deferment of payment is best understood as an agreed temporary postponement of payment under certain conditions. For example, if you’re unable to meet your latest repayment after losing a job, you may be granted a deferment for a period whilst you get back on your feet.
Drawdown – In the world of credit, drawdown refers to the withdrawal of funds from a credit facility. In simple terms, this is the amount of money you have spent.
Durable medium – A durable medium is one that can be stored, accessed easily and reproduced at convenience. In practice this refers to paper (brochure, leaflet or a simple sheet of paper) or a medium that is equivalent because it meets the aforementioned criteria: for example a floppy disk, a CD-ROM, a DVD or a computer hard drive.
Early repayment – Early repayment means partially or totally repaying the credit you have taken out before the end of the term that was originally foreseen. This can lead to you having to compensate the creditor for the loss of income.
Fixed borrowing rate – Fixed borrowing rate refers to an interest (or borrowing) rate that is set at the initial conclusion of an agreement for the entire period of the credit agreement and that should not subsequently change. This also includes agreements in which several borrowing rates are set for partial periods using exclusively a fixed, specific percentage.
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Linked credit agreement – A linked credit agreement is a credit agreement that is directly and exclusively linked to the purchase of particular goods or services.
Mortgage – A mortgage is a credit agreement typically used to buy a property. Under such agreements the property itself is typically used as security. Mortgages are not covered by the Consumer Credit Directive (CCD).
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Open-ended credit agreement – This is an agreement on a maximum-approved, predefined amount that does not have a stated term. Consequently you can use it repeatedly up to a certain limit.
Overdraft facility – This is an explicit agreement whereby a creditor makes funds, which exceed the current balance (usually up to a pre-agreed limit), available to a current account holder.
Overrunning – This refers to a tacit agreement made with the credit provider whereby the current account holder is allowed to exceed the current balance.
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Reference rate – The reference rate is a benchmark interest rate used to specify conditions of an interest rate swap or an interest rate agreement. It is outside the control of the parties to the contract.
Representative example – A representative example is something the credit provider is in most cases obliged to provide in their advertising if they mention the interest rate or any figures related to the cost of credit.
Right of withdrawal – This is one of the rights granted by the Consumer Credit Directive. It states that you’re allowed to withdraw from a credit agreement without giving any reason within a period of 14 calendar days after signing the contract. You must just pay what the credit has cost to date. The payment must be made without any undue delay and no later than 30 calendar days after the withdrawal.
Standard European Consumer Credit Information (SECCI) form – This is the complete set of information you must be given by the creditor or the intermediary in good time before a contract is signed and makes up part of the credit agreement. This information must be provided in a standardised format to allow you to compare offers.
Secured credit – A secured credit is a type of credit supported by collateral. You pledge an asset which the creditor is entitled to take ownership of if you (the debtor) are unable to make payments (defaults). An example is credit secured with a car, which the creditor can take ownership of if its owner does not fulfil the financial obligations agreed upon.
Statement of account – A statement of account is a document, usually monthly, that lists all transactions made (payments received and withdrawals) during the given period.
Surety – A surety is a person or an organisation responsible for your debt if you fail to make a payment (default).
Total amount of credit – This is the ceiling or the total sums made available under the proposed credit agreement.
Total amount payable – Total amount payable means the total amount borrowed plus the cost of the credit (including any interest or other associated charges).
Total cost of credit – This refers to all the costs related to the credit, including interest, commission, taxes and any other kind of fees, which you’re required to pay in connection with the credit agreement (except notarial costs).
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Variable rate – A variable rate is an interest rate that changes over time. It is based on an underlying benchmark interest rate or index that changes periodically. If the underlying interest rate or index declines, your interest payments decrease. If it rises, your interest payments increase.
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