Plain English definitions of 74 UK financial terms — from APR to zero-based budgeting. No jargon.
General educational information only — not regulated financial or legal advice.
A budgeting guideline suggesting 50% of take-home pay on needs (rent, bills, food), 30% on wants and 20% on savings and debt. A useful starting framework for UK households, though housing costs in London and the South East often make the 50% needs target difficult.
50/30/20 rule guide →The interest rate on savings accounts expressed as if interest were paid and compounded once per year. Useful for comparing savings accounts on a like-for-like basis. Higher AER means more interest earned.
ISA and savings guide →The total annual cost of borrowing, expressed as a percentage. Includes the interest rate plus any mandatory fees. Used for comparing credit cards, loans and mortgages — a higher APR means borrowing costs more.
Credit score guide →Something of value you own — such as property, savings, a car or investments. Assets are counted in some means-tested benefit calculations.
A court order that requires your employer to deduct money directly from your wages to pay a debt. Typically used to enforce a County Court Judgement (CCJ) if you do not pay voluntarily.
The UK law that requires most employers to automatically enrol eligible employees into a workplace pension scheme. Employees can opt out but doing so means losing the employer contribution.
An authorised officer who can visit your home to collect debts, typically after a court order. Different from a debt collector — bailiffs have legal powers to take goods. Not all debt collectors are bailiffs.
Debt collector guide →Moving a credit card balance from one card to another, usually to take advantage of a lower or 0% interest rate. A balance transfer fee typically applies (usually 1-3% of the amount transferred).
The interest rate set by the Bank of England's Monetary Policy Committee. It influences mortgage rates, savings rates and broader borrowing costs across the economy. When it rises, mortgage and loan costs typically increase.
A formal insolvency process where your debts are written off after your assets are used to repay creditors. Serious long-term consequences including effects on credit file, possible loss of assets and some employment restrictions. Free debt advice should be sought before considering this option.
A limit on the total amount of welfare benefits a household can receive, set by the Government. The cap varies by location (London vs rest of England). Some benefits are exempt from the cap.
A UK scheme introduced in 2021 that gives people in problem debt 60 days of legal protection from creditor enforcement while they seek debt advice. Must be applied for through a registered debt adviser.
Breathing Space guide →A plan for how you will allocate your income across spending, saving and debt repayment over a set period (usually monthly). A budget is not a constraint — it is a way of making intentional decisions about money.
How to build a budget →A form of short-term credit offered at checkout that allows you to receive goods now and pay later, typically in instalments. Can be costly if payments are missed. FCA regulation of BNPL is being extended.
Understanding debt →The main benefit for unpaid carers in the UK. Paid to people who spend at least 35 hours per week caring for someone receiving a qualifying disability benefit, and who earn below the weekly earnings threshold.
Carer's Allowance guide →A court order in England, Wales or Northern Ireland requiring you to repay a debt. Stays on your credit file for 6 years. Paying within 30 days removes it from the Register of Judgements. Ignoring a CCJ can lead to enforcement by bailiffs.
CCJ guide →A UK Government payment to parents or guardians of children under 16 (or under 20 in approved education/training). Not means-tested at the point of claim, but subject to the High Income Child Benefit Charge if either parent earns above a threshold.
A type of payment authorisation that allows a company to take recurring payments from your debit or credit card without going through Direct Debit. Used by payday lenders, subscription services and some insurers. Your bank must stop future CPAs when you request it.
Under the Consumer Contracts Regulations 2013, you typically have 14 days to cancel most online purchases and subscription services without giving a reason and receive a full refund. Rights may be reduced if you begin using the service immediately.
The amount of money needed to cover basic expenses — housing, food, transport, healthcare — in a particular place at a particular time. The "cost of living crisis" refers to a period where prices rise faster than wages, reducing purchasing power.
A local tax charged by councils in England, Scotland and Wales to fund local services. Charged per household, with amounts varying by property band (A-H) and local authority. Several discounts and exemptions are available including single person discount (25% off) and Council Tax Reduction for low incomes.
A means-tested discount on your council tax bill, administered by local councils. Working-age schemes vary by council; the national pensioner scheme is more generous. Must be claimed from your local council separately from Universal Credit.
Council Tax Reduction guide →One of three UK companies (Experian, Equifax, TransUnion) that compile and store credit history data. Lenders use CRA data to make credit decisions. You have the right to see your credit report from each CRA for free.
A numerical rating of your creditworthiness calculated by a credit reference agency from your credit history. Used by lenders to assess risk when you apply for credit. Each CRA uses its own scale and model.
Credit score guide →The percentage of your available credit limit that you are currently using. For example, using £500 of a £1,000 limit is 50% utilisation. Lower utilisation (under 30%) is generally better for your credit score.
What affects your credit score →A company that pursues payment of debts, either on behalf of the original creditor or having purchased the debt outright. Most must be FCA-authorised. Different from a bailiff — debt collectors have no power to enter your home or take goods.
Debt collector guide →An informal arrangement where you make one affordable monthly payment to a plan manager who distributes it to your creditors. Available free through debt charities including StepChange. Creditors may freeze interest by agreement.
IVA vs DMP guide →A formal insolvency option for people with low income, few assets and smaller debts. Debts are frozen for 12 months and then written off. Less severe than bankruptcy but has similar restrictions. Administered by authorised debt advisers.
A formal notice issued by a creditor under the Consumer Credit Act before closing your account due to missed payments. Gives you 14 days to bring the account up to date. If you do not act, the account defaults and a default marker goes on your credit file for 6 years.
Default Notice guide →An instruction authorising a company to collect payments directly from your bank account. The company can change the amount with advance notice. Protected by the Direct Debit Guarantee, which provides an immediate refund if payments are taken in error.
An additional payment from your local council if your Universal Credit or Housing Benefit does not cover your full rent. Short-term, discretionary and not guaranteed. Available by application from your local council.
The register of people entitled to vote. Being registered on the electoral roll at your current address is one of the fastest ways to improve your credit score and helps lenders verify your identity.
Electoral roll and credit →A pot of savings held in an easy-access account specifically for unexpected costs — car repairs, appliance failure, medical costs or income gaps. The standard recommendation is 3-6 months of essential expenses.
Emergency fund guide →The UK regulator for financial services firms and markets. FCA authorisation is required for most credit, insurance, mortgage and investment firms. You can check whether a company is FCA-authorised at register.fca.org.uk.
A free, independent service that resolves complaints between consumers and FCA-regulated financial businesses. If a firm does not resolve your complaint satisfactorily, you can escalate to the FOS within 6 months.
A loan, mortgage or savings rate that stays the same for a set period regardless of changes in the Bank of England base rate. Provides certainty but may be higher or lower than variable rates depending on market conditions.
Free meals available to children from low-income families in state schools. In England, eligibility is linked to Universal Credit income levels. All children in Reception to Year 2 in England receive universal free meals regardless of income.
Free school meals guide →A UK tax relief that allows charities to reclaim basic rate tax (20%) on charitable donations from UK taxpayers. Higher and additional rate taxpayers can claim additional relief through self assessment. Donors must have paid enough tax to cover the amount claimed.
Your total income before tax and National Insurance are deducted. The figure used for some benefit calculations and mortgage affordability assessments. Most budgeting should start with net (take-home) income.
A person who agrees to repay a loan or meet a financial obligation if the primary borrower cannot. Taking on a guarantor role is a significant financial commitment. A guarantor loan can affect your credit file.
A tax charge that claws back Child Benefit from households where the higher earner's adjusted net income exceeds a Government threshold. The charge increases gradually until the full benefit is repaid. Paid via Self Assessment.
HICBC guide →The UK Government body responsible for collecting taxes and administering some benefit payments including Child Benefit, Tax Credits and Working Tax Credit. Also manages Self Assessment, PAYE and the trading allowance.
The combined total income of all adults in a household, usually measured before or after tax depending on context. Used in benefit calculations, mortgage assessments and ONS statistics.
The rate at which prices in the economy rise over time. Measured by the Consumer Prices Index (CPI) and Retail Prices Index (RPI) in the UK. High inflation reduces purchasing power — the same amount of money buys less.
The cost of borrowing money (paid by the borrower to the lender) or the return on savings (paid by the bank to the saver). Expressed as a percentage rate (APR for borrowing, AER for saving).
A tax-free savings or investment wrapper. The annual ISA allowance is £20,000. Types include Cash ISA, Stocks and Shares ISA and Lifetime ISA. Interest, dividends and gains inside an ISA are completely tax-free.
ISA guide →A legally binding insolvency arrangement where you make fixed payments for typically 5-6 years and any remaining debt is written off. Appears on the Insolvency Register. Only enter through a licensed Insolvency Practitioner — free debt advice first.
IVA vs DMP guide →A savings account for adults aged 18-39 that provides a 25% Government bonus on contributions up to £4,000 per year. Can only be used to buy a first home (up to £450,000) or accessed at age 60. Withdrawal for other purposes incurs a penalty.
House deposit guide →The rate used to calculate the housing cost element of Universal Credit for private renters. Set by the Government for each area and bedroom category. If your actual rent is higher than the LHA rate, UC does not cover the gap.
A benefit where eligibility and amount depend on your income, savings and circumstances — not just a qualifying condition. Examples include Universal Credit, Council Tax Reduction and Housing Benefit.
A rule in Universal Credit that assumes self-employed claimants earn at least the equivalent of the National Living Wage for their hours, even if they actually earn less. Applies after a 12-month start-up period for genuinely self-employed people.
Benefits for self-employed →The smallest amount you must pay each month on a credit card or loan to avoid a missed payment being recorded. Paying only the minimum on credit card debt is very expensive — most of the payment covers interest rather than reducing the balance.
Debt repayment guide →Contributions paid by employees, employers and the self-employed that fund State Pension entitlement, Statutory Sick Pay, Statutory Maternity Pay and some other state benefits. Class 2 NI for self-employed people counts towards State Pension.
Your income after tax, National Insurance and pension contributions have been deducted. Also called take-home pay. Budgeting should always start with net income — the amount that actually arrives in your bank account.
The UK's national statistics body. Publishes the Family Spending survey (household expenditure by region), CPI inflation figures, employment statistics and much more. ONS regional spending data is used in Ask Fin's Local Spending Check tool.
A facility allowing you to spend more than you have in your current account, up to an agreed limit. Authorised overdrafts charge interest; unauthorised overdrafts are more expensive. FCA rules require overdraft rates to be expressed as an annual interest rate.
Paying more than your contractual monthly mortgage payment. Reduces the outstanding balance faster, cuts total interest paid and can shorten the mortgage term. Most mortgages allow up to 10% overpayment per year without early repayment charges.
A high-cost short-term loan. FCA caps the rate at 0.8% per day (approximately 1,500% APR). Total charges capped at 100% of the original loan. Should be a last resort — free alternatives including credit unions and advance payments from employers exist.
Payday loan risks →The system by which employers deduct Income Tax and National Insurance from employees' wages before they are paid. Most employees pay tax via PAYE automatically, without needing to file a self assessment tax return.
A means-tested benefit for people over State Pension age on a low income. One of the most underclaimed benefits in the UK. Receiving even a small amount of Pension Credit unlocks additional entitlements including free TV licence for over-75s.
Pension Credit guide →The amount of income you can earn each year before you pay Income Tax. Check GOV.UK for the current figure as it is set annually in the Budget. Income above the Personal Allowance is taxed at your marginal rate.
The main disability benefit for working-age adults (16 to State Pension age) in England, Wales and Scotland. Not means-tested — does not depend on income or savings. Assessed on how a condition affects daily living and mobility.
PIP guide →Debts where non-payment has the most serious consequences — rent/mortgage (risk of eviction/repossession), council tax (risk of enforcement action), energy bills, court fines. Priority debts should always be addressed before non-priority debts.
A Government scheme allowing homeowners (and some tenants) to earn up to £7,500 per year tax-free from renting a furnished room in their home. Income above the threshold is taxable.
Rent a Room guide →The system by which self-employed people, directors, landlords and those with complex tax affairs declare their income to HMRC and pay any tax owed. The online filing deadline is 31 January following the end of the tax year (5 April).
A savings pot set aside for a specific known future cost — car MOT, insurance renewal, holiday, Christmas. Setting aside money monthly for predictable irregular costs prevents them from arriving as "surprises".
A credit check that does not appear on your credit report and has no effect on your credit score. Used for eligibility checks, identity verification and when you view your own report. Contrast with a hard search, which is recorded.
Soft vs hard credit check →An instruction to your bank to pay a fixed amount to another account on a regular schedule. You set the amount — unlike direct debit, where the payee can change the amount with notice.
A debt where the limitation period has expired — 6 years in England and Wales, 5 years in Scotland — with no payment and no court action. The creditor cannot take court action to recover it, but the debt still exists. Get free advice before assuming a debt is statute-barred.
Debt collector guide →HMRC allows £1,000 of income per year from self-employment, casual work or selling items online without tax or declaration. Above £1,000, register for Self Assessment. Separate from the property income allowance.
The main means-tested working-age benefit in the UK, replacing six older benefits. Available to people in work on low incomes or out of work. The standard allowance plus elements for housing, children, disability and caring.
Universal Credit guide →An interest rate that can change over time, typically following changes in the Bank of England base rate. Variable rate mortgages and loans provide less certainty than fixed rates but can reduce in cost when rates fall.
A financial adviser or mortgage broker who has access to products from across the entire market, rather than being limited to a panel of lenders. Particularly valuable for mortgages and insurance where choice is wide.
A budgeting method where every pound of income is assigned to a category — spending, saving or debt — before the month starts, so that income minus all allocations equals zero. Ensures intentional decisions about every pound.
Zero-based budgeting guide →Ask Fin gives you practical money tools to budget, save, reduce debt and check benefits — for £4.99/month.
Start for £4.99/monthGeneral guidance only. Not regulated financial advice.