When we begin to talk about money and our finances, we take it for granted that we are familiar with and understand what key terms relating to money actually mean. Below are some key terms explained so that you do not get caught out with they are about:
ATM
This is an automated teller machine (ATM). It is often called a cash machine or a 'hole in the wall'. They are often found in walls or sometimes inside a shop or post office. Customers can check their account, withdraw money and carry out other banking services at an ATM.
Bank Balance
This shows you the amount of money held in a bank account. It can be checked on paper copies that are posted out from the bank or your bank balance can be checked online if you have online banking.
Debit Card
This is a plastic bankcard which enables you to take money out of your account via a cash machine or ATM or to pay for something in a shop. When you take money out or pay using your debit card (instead of cash), the money comes immediately out of your bank account so you should ensure that you always have enough money in your bank account so that the payment goes through smoothly.
Credit Card
A plastic card issued by a bank or business which allows the customer to borrow money to pay for goods or services. Organisations like MasterCard and Visa agree to give people credit up to a certain amount. Having a credit card can be useful for buying something and paying for it over an agreed period of time. Sometimes interest can be charged to the amount of money owed on the card. However if you pay all that you owe off the credit card then there should be no interest charged.
Store Card
Many major shops such as NEXT, SAINSBURY'S, TESCO offer a form of credit card which you can only use with that particular shop. Sometimes they are handy to have because you can buy something and pay it off over a number of weeks. However, unless you pay your bill on the card in full at the end of each month, then the interest rate will be charged on the balance of the store card and paying back with high interests rates can prove to very expensive, in the long run.
Contactless
This is becoming a more popular form of paying for things. Paying contactless means that instead of using cash to pay for something, you use a card or your mobile phone to make the transaction. The money comes out of your bank account or building society account electronically and goes to the shop where you have bought the goods.
Credit Rating
This is an estimate of a person’s ability to fulfil their financial commitments (eg. repay loans or pay bills), based on previous dealings, how well they have repaid previous debts and how much money they have regularly going into their bank account.
Loan
A loan is an agreement between a borrower and a lender. The lender provides a sum of money upfront to the borrower and it is agreed by what date the sum of money will be repaid. Usually loans are repaid in instalments (every month) and the borrower will be charged interest on the sum of money left to repay (which means they end of repaying more than the sum of money that they borrowed). Loans are commonly provided by banks, building societies and credit unions to help people buy expensive items such as a new car or a new house.
Interest Rate
This is the percentage of the original loan that is charged as interest and needs to be paid back on top of the original amount of money borrowed. APR stands for Annual Percentage Rate and represents the interest charges over one year that must be repaid.
Overdraft
An overdraft is an unsecured loan provided by a bank or building society. It is a set amount and an agreed amount of money, that is available and attached to your bank or building society account. However there are usually charges if you have taken out too much money from your account and have 'gone into your overdraft' and used that money.
Loan Shark
Loan sharks offer loans with very high interest rates and they tend to operate outside of the law. Some people use loan sharks when they have no money and need to pay bills before they get paid again or receive benefits again. They can seem like a good option at a time however, they are high risk and the borrower can face threats of violence or blackmail if they cannot repay the loan back.
Mortgage
A mortgage is a long term loan, usually used to buy a property like a house. Most mortgages are repaid over a 25 year period although, this could be longer or shorter in some cases. Once you have repaid your mortgage to the bank or building society then you own that property - it belongs to you. However, buying a property, like a house, can be expensive and if you do not keep up with the repayments every month then your house/property and other belongings could be repossessed, i.e. taken from you.
Debt
This is a term used to describe an amount of money that a person owes to someone or an organisation. People are in debt when they have a mortgage, personal loan, owe money on their credit card or on a store card.
Budget
Put simply a budget is a balance of money. It is about money that you have coming in (your income) and money that you spend (your outgoings). Budgets can be used by individuals, households and businesses. They are used as a way to monitor what money is being spent, within a certain time, what money is being spent on and for making sure that you do not overspend and go into debt.
PIN
This stands for Personal Identification Number. It is a private and personal four-digit number that no-one else but you knows. A PIN is used to give you access to an account, it could be to access online banking accounts or to retrieve money from an account accessed from an ATM.