Wonga Jargon Buster: E-L

EAR

EAR, aside from a thing that helps you hear, stands for effective annual rate! This is the amount of interest charged on an overdraft or loan stated as an annual rate. EAR differs from APR because it does not include any additional fees or charges.

Early repayment

This is when you repay borrowed money prior to the arranged due date. Some loans do not allow early repayment, whilst others charge penalty fees for doing this. Wonga doesn’t penalise customers who want to pay back their loan early and you’re welcome to request an early collection any time. That way you only pay interest up to the day you fully repay the loan and can save money.

Equity

In relation to the value of a company, equity will normally be divided into many equal parts which are owned by the shareholders. It also refers to one of those parts, so a director might hold a certain amount of equity in a company for example. In terms of property, equity is the value of a property after you have paid off any mortgage or other charges relating to it. Negative equity occurs when you owe more money than the property’s sale value.

Equity release

A way of releasing money by borrowing against the equity in your home (see above). It usually involves extending your existing mortgage, or taking out a new secured loan against the value of your property.

ERTF

This stands for exchange rate transaction fee. It’s a charge you pay when withdrawing foreign currency from a cash machine or when paying for something in another currency by card. The foreign currency is converted into the bank’s pounds sterling equivalent and a fee, the ERTF, is charged for the service.

Fixed-rate interest

An interest rate that stays the same rate for a specific period of time.

FLA

The Finance and Leasing Association (FLA) is the leading trade association for the asset, consumer and motor finance sectors in the UK. Its members include banks, subsidiaries of banks and building societies, the finance arms of leading retailers and manufacturing companies, plus a range of independent firms. And of course Wonga! The services members provide include finance leasing, operating leasing, hire purchase, conditional sale, personal contract purchase plans, personal lease plans, secured and unsecured personal loans, credit cards and store cards.

Flexible mortgage/ loan

A mortgage or loan that allows you to make overpayments and underpayments without penalty. In some cases, you can also take ‘payment holidays’ - when no payments are made at all for an agreed period.

Further advance

An additional loan made by an existing mortgage lender and secured by the first charge on the property. A further advance can be used for a variety of things such as home improvement, house building, purchasing freehold or personal purposes such as debt consolidation. You need equity in the property to secure a further advance.

Gross

The whole amount of a sum of cash, before any deductions such as tax or fees are made. Your gross salary is the amount you’re paid before tax and your National Insurance contribution are removed for example.

Gross interest rate

Interest earned before any income tax is deducted.

Guarantor

Another person who guarantees mortgage or loan repayments on a borrower’s behalf. A guarantor can sometimes be used to support a borrower who has insufficient income to qualify for a mortgage in their own right, or to make the loan proposition less risky for the lender.

IFA

An independent financial adviser’s job is to help you sort out your finances and recommend products and services to meet your needs. They are regulated by the Financial Services Authority (FSA). Some people find IFAs helpful as they can explain the pros and cons of different financial products. Financial advisers are usually paid by:

• commission, often a percentage taken out of the money you pay or invest, or
• an one-off fee, usually paid direct to the adviser, or
• a combination of commission and fee.

Insurance policy

A policy that pays money to the policy holder to cover losses in the event of theft or damage to a person or property. Insurance can also cover costs such as medical or legal fees. There are many types of insurance policies covering everything from travel and buildings to cars and pets.

Interest

Interest is what you pay for borrowing money, or receive for depositing savings. It's expressed as a percentage rate over a period of time. There are various commonly used types of interest, like APR and EAR. It’s important to understand what they represent when comparing financial products like loans and savings, but also vital to understand the actual cost of repaying any credit you’re considering.

Interest-free

Describes a period when no interest is charged on money borrowed. It’s common practice for retailers to offer interest-free deals on large items such as sofas or cars, to make the purchase more tempting. But always check the terms and cost of the credit when the interest-free period ends. 

Interest-only

A loan on which you only repay the interest, not any of the capital, in your monthly payments. The amount of capital owed remains the same and must be repaid at the end of the term. When taking an interest-free mortgage, for example, you will also need an investment vehicle to build enough cash to repay the capital at the end of the term.

Interest rate

This is the amount of money you pay for borrowing cash, or for depositing savings, expressed as a percentage of the amount you borrow.

Investment

An investment is something you put money, effort or time into to make a profit, or get an advantage from. In terms of money, this is usually something you pay for up-front, like a house, shares or work of art. It can also be something you put money into gradually like a savings account or pension.

Lifetime mortgage

A type of equity release product, usually for the over 60s, which allows you to release money by borrowing against the value of your home. There are no monthly repayments, instead the interest is added to the loan and the whole amount is repaid when you die or move into long-term care, usually from the sale of the house. Because no monthly repayments are made, this means more interest will build up than with a conventional mortgage.

Liquidity

In accounting terms, liquidity is a measure of the ability of a debtor to pay their debts when they fall due. It is usually expressed as a ratio or a percentage of their current liabilities.

Loan

Money borrowed on condition that it is paid back under the terms agreed. There are lots of types of loans, including a short term cash advance from Wonga

Loan period

The time for which money is borrowed, or the period over which payments are made until the loan and interest is fully settled. Another term for loan period is repayment period. Wonga loans are short term and the selected loan period can be any number of days up to a month.

Loan PPI

Loan payment protection insurance (PPI) is a type of insurance policy that can provide cover to help you make repayments on a loan in certain circumstances. For example, in the event of death, terminal illness, hospitalisation, sickness (disability) or involuntary unemployment. There has been a lot of negative press for PPI recently, after some banks were found to be using aggressive selling tactics for a product which isn’t essential for everyone.

Loan shark

An unregulated person or company who usually charges very large amounts of money for loans and behaves in an unscrupulous way. Repayment can be demanded via blackmail or threats of violence.