Glossary of Terms

The glossary of terms (below) is a summary of the Jargon Buster tool which can be found on the Money Advice and Budgeting Service website (www.mabs.ie). 

This glossary provides easy-to-follow explanations for all of the financial terms you’re likely to come across in your daily financial management and budgeting.  For more detailed explanations of some of the terms, please visit the MABS website.

 

 

 

APR

This stands for Annual Percentage Rate. This tells you the cost of a loan, taking into account the interest you pay, any other charges, and when the payments fall due. You can use the APR to compare the cost of one loan with another, for example, a loan with an APR of 15% is more expensive that one with an APR of 11%.

 

Arrears

A debt or payment that is not paid by the due date; or another way of saying “past due”

 

Assignment of Debts

When debt is transferred from the original creditor to a new one, who buys and then pursues it. The original terms and conditions of the agreement with the first creditor still apply.

 

Balloon payment

A large, final payment due at the end of a credit agreement (usually) a hire purchase agreement ) which results in return for lower regular repayments throughout the life of the loan. Ownership of a vehicle bought on purchase hire agreement does not go to the borrower until this payment is made. 

 

Bridging Loan

A loan given by a lender to help the borrower get by (or “bridge”) a delay between buying a new property and selling an old one. These are usually very expensive.

 

Cancellation Rights/Cooling-off Period

A period of time after a person signs a contract, but before the contract becomes binding. In this period of time, you can change your mind about the contract without any penalty. Details of the time limit are usually explained in the terms and conditions of a contract and can vary depending on the type of agreement.

There are some legal rights you should know about:

•    The Consumer Credit Act provides a 10-day cooling-off period for all contracts and agreements, but this right can be given up by signing a waiver.

•    The cooling-off period for online sales starts on the date the contract is signed concluded. This means you can return an item or cancel a service within 7/14 days. 

Capital

The original amount you borrowed in a loan (also called “principal”). It can also mean the amount of money a person saves, invests or borrows before it gains interest or is lost. Think of it as the amount of money you started with.

 

Cash Advance

A cash withdrawal using a credit card, which is basically a loan from the card company and may have a fee and interest attached to it.

 

 

Cash Back

A feature of a Laser or debit card that lets you to get money straight from your account when you use it to buy something in a shop.

 

Commission

A small fee charged as a percentage of something being sold (such as foreign currency exchange). It can also be a payment that a financial services company gives to a broker or financial advisor in exchange for selling their financial product.

 

Compound Interest

The type of interest you pay on money that you borrow. In short, compound interest means interest on interest on interest. It is calculated by adding together the amount you owe and the amount of interest you have been charged in the previous period. Each time a payment is due, interest is re-calculated on the remaining balance (which includes all the interest charged so far). This continues as long as there is a balance due, meaning the amount you owe can increase quite dramatically over quite a short period of time, even if the minimum payment is being paid on time. Common agreements with this type of interest are credit cards, store cards and overdrafts.

This is also the type of interest usually paid to a savings account. It is calculated by adding together the amount you have in your account (the capital), which includes the interest paid on it up to now. 

 

Consolidation Loan

A new, single loan that combines (consolidates) more than one outstanding debt. For example, a consolidation loan could combine your credit card debt, mortgage or rent arrears, loan repayments and household bills into one monthly payment.

 

Cost of Credit

The difference between the amount you borrow and the total amount you will repay (including interest) by the time you have paid it off in full. This shows you the real cost of borrowing.

 

Credit

Money that a bank, building society or a credit card company has lent a person to buy goods or services

This also describes a person’s account when money has been paid into it. If your account is “in credit”, it means that you have money available. “On credit” means that someone (for example, a bank, credit institution, garage or shop) has given you a cash loan, goods or services with an agreement that you will pay back the money, usually with interest, over an agreed time. 

 

Credit Agreement

A document that records the terms and conditions of the agreement between a creditor and a debtor, or between a lender and a borrower.

 

 

Credit Intermediaries

A person who arranges the supply of credit or the letting of goods to a customer, in return for a commission, payment or consideration of any kind from the credit provider or the owner, as the case may be. Examples of credit intermediaries are garages and high street retailers (such as furniture and electrical stores) that offer to arrange finance. A credit intermediary must hold a letter of recognition from each organisation they act for. See www.itsyourmoney.ie for a guide to financial advisors.

 

Creditor

A person or company that lends money.

 

 

Current account

Usually provided by a bank or building society, a current account allows money to be paid in or taken out as you wish. A current account can help with budgeting and money management. Your account statement will show where your money is going and how much is left during the period of time the statement covers (usually around three months). Some customers will be given an overdraft, which means that the bank will lend you money if your balance falls below zero. But be careful when using overdrafts – any salary or wages paid in to your overdrawn account could be used up by the overdraft

 

Data Protection

An area of law concerning your right to the privacy of your personal information. Those who keep information (or “data”) about you have to follow the rules set out under the data protection laws. The main Irish statutes for dealing with data protection are the Data Protection Acts 1988 and 2003 (as amended and supplemented by statutory instruments). You have the right (for a fee of €6.35) to access information an organisation may have stored about yourself and have any errors corrected.

 

Debenture

A document written by a company for security (usually to a bank or building society) that says that some or all of the company’s assets are to be used as security for a debt. A debenture must be registered with the Companies Registration Office.

 

Debit

Money that is taken out of an account (or “debited”) from that account.

 

Debt

Money owed by one person or company to another person or to a company.

 

Debtor

A person who owes money.

 

 

 

 

Dependant

A person who depends on another person for financial support, such as a child or an elderly relative. In preparing a budget or a standard financial statement as part of dealing with your debts, it is important to include details of all dependants who rely on your income.

 

Deposit Interest Retention Tax (DIRT)

A tax paid by a bank or building society on the interest a person gets from their savings. The bank deducts the tax from the interest earned on savings on the customer’s behalf and pays it to the Revenue Commissioners. Some people are exempt from paying this tax and may be entitled to claim this tax back.

 

Depreciation

The decrease in value of something due to wear and tear becoming obsolete (out of date).

 

 

Direct Debit

An instruction to your bank to take money from your bank account automatically to pay a regular but variable bill. For instance, an electricity bill that is different each month. Direct debits can sometimes cause problems if you cannot afford a particular bill, which can result in failed payments, additional charges and overdrafts. To cancel a direct debt, you must write to both your bank and your creditor.

 

Discounted Rate Mortgage

A type of mortgage usually offered to new customers in which the interest rate is reduced for a set period of time.

 

Disposable Income

Income left over after you pay your taxes, debts and after you pay for basic necessities (such as groceries and utility bills). This is generally used to make a payment plan with creditors when your debts are due.

 

Dividend

Money that a company pays to its shareholders (people who own part of the organisation) from its profits. This term is also used by credit unions and refers to the amount paid to members at the end of the financial year

 

Electronic Banking

The different ways to manage your money without going into a bank (for example by using an ATM card, the internet or the phone).

 

Enforceability of debts

The Consumer Credit Act 1995 sets out certain conditions that an agreement must meet for it to be enforceable. If these conditions are not met, the agreement may be challenged as being void.  A creditor must bring an action to enforce a debt within six years of the date the debt was last acknowledged. For example, if you took out a loan in 2000 but have made no repayments and had not contacted the creditor about the debt since 2005, then the debt will be unenforceable from 2011 (six years after the debt was last acknowledged). This limitation period does not apply to Revenue debts, which are enforceable forever.

 

 

Equal Liability

If a creditor was in some way responsible for the debtor refusing to pay (for example by selling faulty goods), they may be held equally liable for the debt.

 

 

Equitable Distribution

Also called “pro-rata distribution”, this is how money to pay debts is shared between secondary creditors. It is considered a fair system of making sure the person who is owed the most receives the biggest share of the payment. For details of this calculation, see page 21 of the MABS Guide to Managing Your Money and Dealing with Debt.

 

 

Equity

The difference between the value of a person’s property and the amount of the mortgage they still have to pay.

    Negative Equity
    Where the value of the mortgage is greater than the value of the property. 

 

Fixed Asset

An asset that a business intends to use for several years, such as buildings and equipment.

 

 

Fixed Interest Bond

A type of investment that pays a set amount of money in interest, no matter how interest rates go up or down.

 

Fixed Interest Rate

An interest rate that stays the same for a fixed time no matter how much other interest rates may go up or down. To change from a variable interest rate to a fixed interest rate is likely to come with a fee.

 

 

Fixed Rate Mortgage

A type of mortgage where a person pays a fixed interest rate (usually a little higher than other interest rates), no matter how interest rates go up or down. To change from a fixed interest rate is likely to come with a fee.

 

 

Frozen Interest

In certain circumstances, a creditor may agree to temporarily freeze interest to allow money being paid to go directly towards reducing the principal amount.

 

 

Full and Frank Disclosure

 

Being honest with your creditors about your financial situation and providing as much other information as they need to help them make an informed decision in relation to your debt.

 

 

Gross Interest

The total interest on savings before any tax is taken off.

 

 

Gross Pay

Total pay before income tax, PRSI, levies or pension payments are taken off.

 

Guaranteed Interest Rate

An interest rate that someone can be sure they will receive on particular savings.

 

 

Guarantor

Someone who agrees to pay a loan if the person who received the loan does not. A guarantor should get independent legal advice before signing the guarantee (particularly for a mortgage loan).

 

Hire Purchase Agreement

A form of credit agreement that is often used to buy cars. It allows for a car to be bought and paid for by installments. The car is not owned by the borrower until the last payment is made.  If payments are not made as agreed and less than one-third of the loan has been paid, the car can be taken away (repossessed) and sold. The borrower cannot sell the car until it is paid in full, unless they have the lender’s permission first. 

Indemnity

A promise to compensate someone else for loss or damage, or protection from legal responsibility, from a person’s actions.

 

Indexation

A way of changing the value of savings and the cost of goods and services to compensate for the effects of inflation.

 

 

Inflation

An increase in prices.

 

 

Insolvent

When a person or organisation cannot pay debts when they are due for repayment. Personal insolvency is also known as bankruptcy.

 

Interest-Only Mortgage

A mortgage where a person pays only the interest to the lender for a set period of time.

 

Joint Account

A bank account held by more than one person, usually by a married couple or by partners who live at the same address. On the death of one person, the other is automatically entitled to the balance of the account

 

Lease

Leasing (called “consumer hire” in the Consumer Credit Act) generally means paying monthly installments to use something you don’t own for a set period of time (for example, a car). At the end of the period in the lease agreement, you still don’t own the car and you can’t sell it (as it does not belong to you).

 

Legal Aid

If you cannot afford a private solicitor, you may apply to the Legal Aid Board to have one appointed for you. Legal aid is means tested and will depend on your earnings and/or savings.

 

Liability

The amount of your legal responsibility for a debt.

Limited Liability

 Many companies have limited liability, which means that the shareholders are only liable up to the amount of money they have invested in the company if that company is wound up with outstanding debts

 

Liquidated Debt

A disputed debt

 

 

Liquidation

The process of winding up a company when it is unable to pay its debts. A representative (liquidator) is appointed and the assets of the company are sold to repay the debts, in order of priority.

 

Mandate

An instruction by a customer to a bank to operate their account in a certain way. The most common mandate is a direct debit

 

Means

Any income or property (besides a family home) or other asset that could provide an income.

Means Test
A way of working out the value of a person’s means by examining both their income and the value of their assets.

 

Mortgage Arrears

Mortgage payments that a person has not paid by the time they are due.

 

 

Mortgage Interest - Tax Relief at Source

A tax relief on the interest portion of your mortgage installment for your home (not available for investment properties). It is not given through the tax system but is instead granted “at source”, which means that your repayments are reduced by the amount of the tax credit due, by your mortgage lender. Any future adjustments in your tax relief will be made automatically by your mortgage lender. It is not necessary to claim relief on your annual tax return or to contact your local Revenue office

 

 

Mortgage Interest Supplement (MIS)

This is a short-term supplement (normally 12 months) available to certain householders  who are no longer working and cannot meet their mortgage repayments and available from the HSE to pay the interest portion of a person’s mortgage installment for their home (it is not available for investment properties). Applications for MIS are subject to certain criteria.

 

 

Non-Contributory Payment (also known as Social Assistance)

A social welfare payment that is based not on PRSI contributions but on a person’s means as verified by a means test. For example, Unemployment Assistance and One-Parent Family Payment. 

 

 

Overdraft

If more money is withdrawn from your current account than you have put in, you will be overdrawn. You can ask your bank if they can arrange to lend you money for a short time to be repaid at an agreed interest rate (authorised overdraft). 

If you are overdrawn without asking the bank in advance, they may refuse to pay your cheques, standing orders or direct debits and charge you a high interest rate on the money that you owe them. This type of borrowing is best used for a short time only because the cost is usually high and is charged every month on the amount owed. 

You should also be aware that, depending on the terms and conditions of your bank account, some banks may take the whole amount of the overdraft as soon as your salary or wages go into your account. 

 

 

P45

A document that an employee receives when they leave a job, which shows their total pay up to the date they leave, as well as the total tax and PRSI that their employer has deducted.

 

 

P60

A document that an employee receives at the end of every year which shows their total pay for that year, and the total tax and PRSI that their employer has deducted. This is used to apply for certain social welfare payments, mortgages or anywhere proof of income is required.

 

PAYE - Pay as you Earn

Taxes taken directly from your wages by your employer, who then pays them to Revenue Commissioners.

 

 

PPS Number (Personal Public Service Number, formerly “RSI Number”)

A unique reference number for each person in the State that identifies a person for all matters related to tax, social insurance and social welfare benefits.

 

 

Pro-rata

A method which MABS uses to fairly calculate payments to non-priority creditors to ensure that they receive an equitable or fair distribution of the money available to repay a number of non-priority debts.

 

 

Probate

A legal process that involves managing and distributing the estate of someone who has died, according to instructions left in a will.

 

 

Promissory Note

A written promise to pay an amount of money to someone at a given time or on demand.

 

 

Rebate

A return of part of an amount that a person has paid (usually tax-related). If you think you have paid too much income tax, you can have your taxes checked by the Revenue Commissioners, who will issue you with a cheque for any rebate due. However, if you have paid less tax than you should have, you will be liable to pay that amount to the Revenue Commissioners.

 

 

Receivership

The appointment (usually by a bank) of a person (or “receiver”) to take over the management of a company to pay off a secured debt.

 

Redemption

Paying off all the money borrowed under an agreement at once. A lender will provide details of the redemption amount on request. If you redeem a fixed term loan early, the redemption amount will include a penalty charge for early repayment. 

 

 

Refer to Drawer

Words written by a bank on a cheque that it will not pay (for example, if there is not enough money in the account) before returning it to the bank branch that requested payment

 

Secondary Debts

Those debts where non-payment will not result in the loss of your home, liberty or essential goods and services. The people you owe the money to can take you to court to recover the debts, but you cannot be sent to prison for non-payment.

 

 

Secured Loan

A loan that is secured against a particular asset (or “security”). If a person cannot make the repayments when they are due, the lender can take ownership of the asset.

 

 

 

Sort Code

A six-digit code that identifies a person’s bank branch. This is printed on bank statements and cheques. Sort codes are stored by the Irish Payment Services Organisation.

 

Stamp Duty

Tax that a person pays to the Revenue Commissioners when they buy: 
•    a second-hand property over a certain value
•    a new investment property over a certain value 
•    shares
•    certain commercial contracts

 

 

Supplementary Welfare Allowance (SWA)

A range of means-tested, eligibility-based payments from the Department of Social and Family Affairs including: 
•    Rent Supplement
•    Mortgage Interest Supplement
•    Exceptional Needs Payment
•    Urgent Needs Payment
•    Back to School Clothing and Footwear Allowance

 

 

Tangible Assets

Assets that can be touched physically (such as property, equipment and furniture).

 

 

Tax

A fee charged by the government (through the Revenue Commissioners) on goods, services, income and activities.

Tax Avoidance

A legal way of reducing the amount of tax a person owes.

Tax Code

A reference for different types of employees to determine how much income tax a person should pay in a certain period and how much of their income is tax free. This code tells your employer how much tax-free income to give you in each pay period. Your tax code is worked out from your tax allowances and other tax adjustments.

Tax Credit

The amount of income on which a person does not pay tax, including their personal allowance and tax relief for any mortgage or health insurance payments. 

Tax Debts

Unpaid taxes owed to the Revenue Commissioners.

Tax Evasion

An illegal way of reducing the amount of tax a person owes, for example by concealing income.

Tax Reliefs and Exemptions

There are a range of tax reliefs and exemptions available if you meet certain criteria.

Tax Relief at Source

See Mortgage Interest Tax Relief at Source.

Tax Return

A form that a self-employed person must complete to record their income and any allowances for the year and submit to the Revenue Commissioners on time to avoid penalties and fines.

 

Tax This Period

A statement on a pay slip to say how much income tax a person owes in particular period, based on their particular tax code.

 

 

Term Deposit

A type of account a person agrees to leave their savings in for a set period of time (or “term”) or else face penalties.

 

Term Loan

A loan that a person or organisation must repay within a set period of time.

 

 

 

 

Tracker Variable Rate

A rate of interest that is linked to another rate, such as the European Central Bank’s (ECB) rate. The tracker rate continues over the term of the mortgage and the lender is obliged to pass on any changes to its customers. 

This is in contrast to the “standard variable rate” mortgage, where the rate varies depending on market conditions and other competitive factors.

 
Few, if any, mortgage lenders offer tracker mortgages anymore and if you switch from a tracker rate to a fixed or standard variable rate mortgage, you may not be able to switch back. 

 

 

Variable Interest Rate

An interest rate that is likely to go up or down over time.

Variable Standard Rate

An interest rate that goes up or down, usually in line with the rate set by the European Central Bank. The lender of a variable standard rate loan does not have to pass on any changes to the customer. See also Standard Variable Rate (SVR) Mortgages.

 

 

Variation Order

A court order that changes some or all of the terms and conditions of an existing court order. A variation order can be applied for by a debtor or a creditor because of a change in circumstances. For example, with installment or maintenance orders, a debtor  can apply for a variation order if they were unable to attend court when the original order was made or if they are  having difficulty making the payments.

 

VAT (Value Added Tax)

A government tax on most goods and services. It is collected by VAT-registered traders when they sell goods and services to customers.

 

 

Voluntary Excess

Most insurance policies include an “excess” (the amount of any insurance claim that you pay yourself). Your insurer will then pay the balance. A voluntary excess is a higher amount that you can choose to pay in return for cheaper insurance premiums.

Waiver

A document in which you voluntarily give up your legal right to something. For example, lenders are required to offer borrowers a 10-day “cooling-off” period – but most loan agreements contain a waiver of this period so that borrowers can get quicker access to the loan.  In reaching a repayment agreement with creditors, some creditors will waive interest and charges to give you the opportunity to pay off the arrears without increasing your debt.