Glossary of bridging finance terms

• Annual Percentage Rate (APR)
• Applied or Nominal Interest Rate
• Base Rate
• Bridging Finance
• Capital
• Collateral security
• Cooling off period
• Credit Insurance
• Credit Reference Agency
• Deposit
• Early redemption charge
• Fixed Interest Rate
• Loan Insurance
• Second Mortgage
• Total Charge for Credit

Annual Percentage Rate (APR)
All companies lending money or advancing credit are required by law to quote this rate. It will be only one of a number of interest rates you may see quoted. It is also likely to be the highest rate shown.

All loans, credit cards, mortgages and overdrafts may all be quoted at introductory rates but may not quote arrangement fees you may be charged for loans or any higher rate of interest that your borrowings may revert to. This is where the APR comes in. It was originally introduced as part of the Consumer Credit Act of 1974.

The advertised rate on any credit facility may be the rate of interest you pay per month or per year, but it's the APR figures (usually shown in brackets) which calculates the total amount of interest that will be paid over the whole term of the loan. The APR should also take into account any other charges which the borrower has to pay.

Applied or Nominal Interest Rate
This is the rate of interest which the lender uses to calculate the amount you actually owe. It will not be the same as the APR and it may be a slightly lower figure as it may not include all charges.

Base Rate
Also referred to as the repo rate, the base rate is the minimum rate at which banks are prepared to lend money - it acts as the benchmark for interest rates of other lenders. The high street banks' base rate changes following the Bank of England's signals through its daily money market operations.

Bridging Finance
Bridging Finance is a short term loan, mainly used for the purchase of a property where funds are required for a limited period of time, for example where a purchaser wishes to secure a new property even though the sale of their existing property has not completed.

Capital
A sum of money. The capital is the amount you have invested or borrowed as distinct from any return you may get from an investment or any interest you may be required to pay. It is used throughout the term of a mortgage to describe the amount outstanding that you owe, excluding charges or interest.

Collateral security
This is extra security provided by a borrower to guarantee their intention to repay borrowing. This security is likely to be in the form of deeds to property.

Cooling off period
Under the Consumer Credit Act, 1995, you have the right within 10 days to reconsider a credit agreement (loan or credit card offer) and refuse in writing the agreement on offer without obligation. If you agree to waive this right, the contract will take effect immediately.

Credit Insurance
This is a payment protection insurance policy to protect you should you take out a loan and then fall sick or be made redundant. The policy will cover your monthly loan repayments for the period of hardship / illness.

Credit Reference Agency
Credit reference agencies hold files on the financial records of most adults in the UK. The file may hold details of: people on the electoral register at your address(es); your credit agreements, including details of any late payments & defaults - this can be held for up to six years; court judgments and bankruptcy orders against you - these are also be held for six years; previous applications for credit; and people living at the same address as you, such as your family.

These agencies do no more than supply information to lenders. The lenders use the information as part of their credit scoring. If you'd like to have a look at your own files, contact the agencies. You can order your credit file from the main agencies over the internet and your file will be sent back to you within seven days When you receive a copy of your own credit record, if you spot information you think is incorrect, write back asking for the record to be amended.

The three main credit reference agencies are:

Deposit
A deposit is the sum of money you put down as the first installment in a series of payments. In purchasing property it is the sum payable by the buyer as a sign of good faith to the seller when the initial agreement is made.

Early redemption charge
This is a charge made by a lender which is payable on certain types of loan if the loan is redeemed or part-redeemed within the specified early redemption charge period.

Fixed Interest Rate
The rate of interest you pay on a loan that is fixed for a set period of time. If you borrow at a time when interest rates are low then you will continue to benefit from the low rate agreed at the time you borrowed even if interest rates rise.This type of agreement allows you to budget easier as repayments will not fluctuate.

Loan Insurance
Your lender may insist that you take out an insurance policy to cover any loan that you arrange with them. The insurance policy will cover the repayment of the loan in the event of your inability to make the repayments either through death or loss of earnings.

Second Mortgage
Otherwise known as a secured loan, a second mortgage is an additional mortgage taken out on a property where a mortgage already exists. The rate of interest on a second mortgage is likely to be higher than that of your first mortgage to reflect the fact you're borrowing more heavily and so deemed to be a higher risk to the lender.

Total Charge for Credit
This is the full amount that you will be required to pay. It includes the loan amount advanced, interest payable plus any administration fees, costs, and insurance charges. It is the figure that is used as the basis from which the annual percentage rate (APR) is calculated.