Personal & Business Finance and Debt Management - Glossary of Terms
Invoice Factoring
The 'sale' of a company's accounts receivable to a third party, at a discount.
The company receives immediate cash for their invoices, without the need
to chase their debtors.
Interest Only Mortgage
A mortgage where payments made cover only the interest on the loan - the
sum borrowed does not diminish over the course of the mortgage. This type
of mortgage should always be supported by an investment product, such as
an ISA or endowment, which is designed to repay the initial loan at the
end of the mortgage term.
Invoice Discounting
A similar arrangement to factoring, but offering a less comprehensive service.
The company receives cash against their outstanding invoices from the invoice
discounting provider, but is still responsible for ensuring that their debtors
pay.
Loan to Value (LTV)
The percentage of a loan against the value of the asset securing it.
Preferential Creditor
Those creditors that are given priority over a debtor's assets if court
proceedings are initiated in order for creditors to seek outstanding payments.
Refinancing
Paying off existing loans by obtaining an alternative loan, usually at a
better interest rate.
Repayment Mortgage
A mortgage where the payments made cover the interest and reduce the size
of the loan until at the end of the mortgage term there is no remaining
debt.
Secondary Creditor
A creditor who has reduced power to seize assets from a debtor in legal
proceedings such as bankruptcy hearings.
Second Charge Loan
A loan secured on an asset that already has an existing loan secured on
it – for example, a loan secured on a house that is already mortgaged.
Secured Loan
A loan that is made on the proviso that if the borrower fails to make payment,
the creditor is entitled to the assets against which the loan is made, for
example, his or her house.
Unsecured Loan
A loan which is made based solely on the borrower’s promise to pay.
Bridging Finance
A short-term loan that provides a solution to a temporary cash shortfall,
for example if you need to pay a second property before you have sold or
received the funds from the sale of your existing property.
Contract Hire
A leasing arrangement whereby the lessee has the option to buy the leased
item at the end of the leasing period