Banking and Credit Jargon Debunked: Check Out What Finance Terms Really Mean Here
Like every other industry, banking has a lot of terminologies that helps banks and their customers understand one another. Unfortunately a lot of these terms have been given incorrect meanings. Over the years, some of these wrong meanings have become accepted as correct, and while it may not exactly harm anyone, it is important that we know what these words are, and what they truly mean.
In this article, we would look at a few of these banking jargons and try to explain what they truly mean in simple English.
1. Current account
A current account is the account you open to manage your day to day transactions. It is completely different from a savings account where you typically save money long-term. Most people refer to their current account as their bank account, and they are right, as this is where their salary and other spending money go into.
Because of the way this type of account is designed, your bank may place a limit on the amount of money you can withdraw daily, but this limit can be extended on your request.
You have certainly come across the word interest before. Interest can mean any of two things.
When you borrow money from a financial institution, Mortgage Company, or private lender, what you are required to pay on top of the borrowed amount is known as an interest. It is usually calculated as a percentage of the sum of money borrowed, and is influenced by the duration of your loan.
If you are in the market for a loan, it is important that you calculate your loan interest before hand, so that you will know if you can meet your repayment obligations.
Interest is also the amount of money you gain from your bank when you put money into your savings account.
3. APR or Annual Percentage Rate
Annual percentage rate is the official rate given to you by a loan provider when you borrow money. APR typically includes other charges and fees relating to your loan so that you can have a fuller picture of how much your debt will cost.
When shopping for a loan, you may want to compare APR instead of only interest rate as lenders can advertise a low interest rate, but end up swamping you will a lot of expensive add-on fees.
4. Credit history
A credit history details a record of all the loans you have taken out in the past, and their subsequent payments or missed payments. The information contained in your credit history is used by credit agencies to advice financial institutions on your credit worthiness when you apply for a new loan. If you have a poor history of paying back loans, your new loan application will likely be turned down.
5. Credit Rating
A credit rating, also known as a credit score is a rating that shows how you have handled your finances in the past, and helps lenders determine if you should be considered for a loan.
Your credit score is usually influenced by your credit history and a number of other factors.
When you have a poor credit score, you will have a low chance of qualifying for a loan, and even when you do, you can expect to attract a high interest rate.
6. Direct debit
Direct debit allows you to automate recurrent expenses. For example, if you are responsible for paying utilities like phone bills, water and heating, and light bills, setting up direct debit will make sure the exact amount is remitted to the relevant organisations when due. The amount may be the same for each payment, but it can also change where necessary.
Direct debits are usually controlled by the receiving organisation, however, you can cancel them when you want, and that is if you no longer need the services you are paying for.
It is important that you check your bank statement often to make sure you have not been overcharged via direct debit.