Intro
Money has a language of its own, and sometimes it feels like everyone else is fluent. To keep things simple, here’s a quick guide to some of the most common terms you’ll see and what they actually mean.
Terms
- APR – You’ll spot this on credit card adverts. It stands for Annual Percentage Rate, which is the yearly cost of borrowing money, including fees and interest.
- ISA – This stands for Individual Savings Account. The big selling point is that the interest or investment growth is tax free. There are different types such as cash ISAs, stocks and shares ISAs, and lifetime ISAs. At its heart, it is simply a savings account with tax advantages.
Continued
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- Pension
A pot of money set aside for retirement. The basic idea is you, and sometimes your employer, pay into it while you are working, and then you draw from it when you stop. Defined benefit and defined contribution are the two main types.Equity
This is the bit of your home that you actually own. If your house is worth £250,000 and your mortgage is £150,000, then you have £100,000 in equity.Loan to Value (LTV)
A percentage that compares the size of your mortgage to the value of your property. If you borrow £180,000 to buy a house worth £200,000, your LTV is 90%.Compound Interest
Interest on your savings, plus interest on the interest you have already earned. It is why money in savings can grow faster than you expect over time.Inflation
The general rise in prices over time. If inflation is 4%, something that costs £1 today will cost £1.04 in a year.Credit Score
A number that reflects how likely you are to repay money you borrow, based on your past financial behaviour. Lenders use it when deciding whether to offer you credit.Money does not have to be confusing. Sometimes, just knowing what the jargon means makes it a lot easier to follow the headlines and a lot less intimidating when you come across these terms in everyday life.
If you’re looking for financial advice, please get in touch
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