The Top Financial Terms You Should Understand

When it comes to managing your personal finances, choosing savings accounts and generally growing your personal pot, there is a basic amount that you need to know. Of course the subject of finances is a huge one and no one should be expected to understand the entire topic without a degree in accounting (and even then there will be things you don’t know…).

All that matters though is that you understand these fundamentals and that you ensure you know what the terms you’ll encounter regularly mean. As long as you know a few fundamental terms and understand some basic principles, you should be equipped to deal with pretty much any questions you bank might pose to you, and make pretty much any of the key decisions you need to regarding your accounts and services. Here then we will look at some of the fundamental terms you need to understand so that you are equipped to manage your own finances and make the important decisions.

APR: APR means Annual Percentage Rate. This is a term that will come up often when you are looking around at different bank accounts and it indicates the amount you can expect to earn on the money you save after fees. High APR is good in a savings account, but bad on a loan.

Cumulative Interest: If you are saving money, then cumulative interest is very important and something that will earn you a lot more cash over time. What this basically means is that the APR you earn doesn’t just apply to the initial amount you put into your account, but into the total amount as it grows. In other words, as the amount of money in your pot increase so too will the amount it increases by each year.

Credit Rating: A credit rating, score or history reflects your reputation in the eyes of the banks and lenders, based on your former performance. In other words, if you have managed to pay back your loans in the past promptly and in full, then you’ll have a good credit score and you’ll find it easier to get a cheap loan in future whereas if you have a lot of outstanding debt or have made lots of late repayments, then you may struggle.

Secured Loan: A secured loan is a loan that you take out against your property. This then means that your property becomes collateral, and if you can’t pay off the loan the bank or lender will then own part or all of your property which it can sell off in order to earn the money back. This can help you to get a cheaper loan, but of course you need to be certain that you’re able to pay the loan back.

PPI: PPI stands for ‘payment protection insurance’ and is a type of insurance that you take out for your loan. This will then pay out in case you are unable to make your repayments, but it’s usually worth looking for it elsewhere rather than using the PPI offered to you by your lender which will have better rates and be more comprehensive.

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