Frequently Asked Questions
A: AER - Annual Equivalent Rate. This shows what the interest rate would be if interest were paid and added to your account each year.
APR - Annual Percentage Rate. The interest payable on what you've borrowed is added up along with other charges (e.g. arrangement fees) and then expressed as an annual rate of charge. The APR helps you compare the true cost of borrowing. The APR takes into account all fees and charges applied to the mortgage as well as the monthly payments over the life of the loan.
arrangement/administration fee - a fee to cover administration costs.
arrears - money that was due to be paid but has not been paid. When you are behind in payments, you are in arrears.
assets - your money, property, goods and so on that have a financial value.
BACS - An automated bank transfer system that allows money to be transferred from one account to another, that takes 3 working days to complete.
base rate - the interest rate from which lenders set their rates for lending and savings products, normally based on the base rate set by the Bank of England.
capital - money that you've invested or borrowed (e.g. to buy a property). It doesn't include the income or profit you get from an investment, or the interest you have to pay on a loan or mortgage.
CHAPS - Clearing House Automated Payment System. This is a system that enables money to be transferred from one bank account to another on the same day.
cleared balance/cleared funds - includes credits (cheques and cash) that have completed the clearing cycle. You can only withdraw or transfer money to another account with money from your cleared balance. The cleared balance is updated during the day as you make payments into and out of your account.
clearing cycle - the process that your cheque goes through when you pay it into your account. A cheque won't be cleared if, for example, the person who gave it to you doesn't have enough money in their account.
credit balance - the amount of money in your account.
credit limit - the maximum amount of money that you may borrow.
debt - an amount of money that you owe to a person or company.
Direct Debit - an instruction from you to your bank or building society allowing someone to take money from your account. The amount of money taken can vary, but you must be told the amounts and dates beforehand. Direct Debits allow you to pay bills automatically from your account on a regular basis.
EAR - Effective Annual Rate. This is the amount of interest charged on an overdraft and is stated as an annual rate. Unlike the APR, the figure does not include any fees or charges.
faster payment - A system used that enables money to be transferred from one account to another, same day, but for lower value transactions.
fixed-rate interest - an interest rate that stays the same throughout an agreed period.
gross - the whole amount before any deductions (such as tax or fees) are made.
gross interest rate - interest before income tax is deducted.
interest - the amount that you pay when you borrow money. It's expressed as a percentage rate over a period of time.
interest-free - no interest is charged on money that you borrow.
interest rate - the rate at which you pay back interest, expressed as a percentage of the amount you borrow.
investment - something you put money into that will provide income in the future (such as savings) or gain in value so that you can sell it at a higher price later.
loan - money that you borrow (e.g. to buy a new vehicle) on condition that you pay it back.
net - the amount after deductions (such as tax or fees) are made.
net interest rate - the rate payable after the lower rate of income tax is deducted. (NB the rate of tax may vary, so a net rate is usually only given as an example.)
nominal annual rate - the rate of interest that would apply if the interest were not added each year and if there were no inflation.
overpayment - higher or extra payments that you make (usually to pay off your loan early).
p.a. - 'per annum', which means 'each year'.
payment holiday - a period of one or more months when you don't make repayments on your loan, although interest continues to accrue during that time.
rate - the percentage interest rate charged by a lender.
return - the profit you get, for example, when you invest money.
share - a unit of ownership in a company.
share certificate - shows the amount of ownership.
share dealing - the process of buying and selling shares.
stock - another term for share.
transaction - each time you pay money into or take money out of your account, it's called a transaction.
underpayment - a loan payment that is less than the amount that you should normally pay for that month.
variable-rate interest - the interest rate that you pay on your loan and that rises and falls roughly in line with the base rate set by the Bank of England
Flat vs. APR - What's the difference?+
A: Members need to be on their guard when dealing with car dealers. Legally, dealers are obliged to confirm the APR (annual percentage rate) before you sign an agreement where finance is being provided to fund a vehicle purchase.
A member recently contacted bira bank to enquire about vehicle finance rates. He was surprised when we quoted both an APR figure and a flat rate figure, particularly as his recent visit to a car dealer had only elicited a very attractive flat rate with no mention of APR at all. In practice, you may be lucky to be quoted any rate at all by some dealers during preliminary discussions while others may quote you the flat rate as opposed to the APR as it always appears the most attractive being the lesser of the two. Unfortunately, this can be misleading as you may think that you are getting a good deal when in practice you are not.
So what is the difference between the flat lending rate and the APR? The flat rate is the basis of the calculation for the amount of interest you will pay over the term of the loan. However, as the loan is diminishing as it gets paid back over the loan term(say 3 years),then the “real” rate of interest is higher as it is calculated based on interest payable v the average size of the loan outstanding throughout the term(plus certain fees associated with the loan).
Typical example: On a loan of £10,000 over 3 years for a new vehicle,our flat rate of 3.30% equates to an APR of 6.40% (note: the APR is always just over the flat rate *2).For a dealer to quote 3.30% then he should clarify that 3.30% represents the flat rate not the APR.
Always get the dealer to quote the lending rate and to clarify whether it is the flat rate or the APR and compare like with like. Knowing the difference can really save you a lot of money.
Can any bira member apply?+
A: Yes, provided your subscription is fully paid up. The personal loans facility is only available to directors and proprietors and by law, to persons 18 years of age or over.
How are repayments made+
A: All repayments must be made by standing order from your bank or building society and should not be less than £20 per month.
What about loan insurance?+
A: Payment Protection Insurance is to be arranged at your own discretion. We do not offer this service.
What about VAT?+
A: For all items regardless of whether VAT is recoverable, it is a legal requirement that the supplier’s invoice must be made out to ‘bira bank'. If VAT is recoverable (on most items except cars) then this can be done on the authority of the finance document which will be your input advice. All the VAT on a hire purchase agreement is recoverable on your next VAT return regardless of the fact that you may not have completed the purchase until, say 36 months time. VAT on leases is charged and recoverable on each monthly instalment, for which we will provide a VAT invoice.
Can I settle early?+
A: You may settle your outstanding balance at any stage of the agreement without penalty, and an appropriate early rebate will be given.