Loan Jargon Buster for Teachers & Education Staff

Even to the sharp minds working in education, loans can sometimes feel like a different language. From APR to DTI, these fiddly little terms can often make things more confusing. But it’s so important to understand them if you want to get a loan that’s right for you.

As a credit union for teachers and education staff, we try to explain jargon wherever possible or avoid using it altogether. Unfortunately, we can’t say the same for other lenders.

Below, we’ll help you get to grips with 14 terms that can help you manage your finances responsibly.

1. Principal

The principal is the amount of money you borrow, before interest or fees. If you need £3,000 for a new kitchen, that £3,000 is the principal. Every repayment you make includes part of the principal and part of the interest.

2. Interest

Interest is what the lender charges for letting you borrow money. It’s usually expressed as a percentage of the loan amount. Think of it as the cost of borrowing.

3. APR (annual percentage rate)

APR represents the total cost of the loan over a year, including both interest and fees. It’s a useful figure for comparing different loans. For example, a loan with a 7% APR is cheaper over time than one with a 12% APR, even if the monthly repayment looks similar.

Related: 6 Schoolboy Errors to Avoid with Teacher Loans

4. Loan term

The loan term is how long you have to repay the loan. It could be months or years.

• Longer terms usually mean smaller monthly payments, which can help with budgeting. That said, you’ll usually pay more interest overall.
• Shorter terms mean higher monthly repayments but less interest over the life of the loan.

5. Repayment schedule

This tells you how often you need to pay and how much each payment will be. Most personal loans are repaid monthly, but some lenders offer fortnightly or weekly options. As an example, teachers who get paid monthly might want to align repayments with their salary for easier budgeting.

Related: A Teacher’s Guide To Loan Repayment Strategies

6. Secured vs unsecured loans

• Secured loans are backed by an asset, like a car or house. If repayments aren’t made, the lender can take the asset.
• Unsecured loans don’t require any assets. These are riskier for the lender, so interest rates can be higher.

For most education staff looking for small personal loans, unsecured loans are the norm. But it’s important to know the difference if you’re considering borrowing against property.

7. Credit score

Your credit score is a numerical summary of your credit history. It shows lenders how likely you are to repay borrowed money. A good credit score can make it easier to get a loan and often means lower interest rates.

Even if your score isn’t perfect, credit unions are usually more flexible than high-street banks. For example, we can take into account that teachers may have fixed incomes or temporary changes in hours.

8. Debt-to-income ratio (DTI)

DTI is a measure of your existing debt compared to your income. It’s calculated by dividing total monthly debt payments by monthly income. Lenders use this to see how much spare capacity you have to repay a new loan.

For example, if a teaching assistant earns £2,200 a month and already pays £400 in other loans or credit, their DTI would be 18%. That means 18% of their monthly income already goes on debt, helping lenders determine how much more they can responsibly borrow.

9. Fixed vs variable interest rates

• Fixed interest rate: These stay the same throughout the loan term. They’re predictable and good for budgeting, especially for staff on stable teaching contracts.
• Variable interest rate: These can change over time with market rates. They might be cheaper initially but could increase, affecting monthly repayments.

10. Early repayment / overpayment

Some loans allow you to repay early or make extra payments, which reduces the total interest paid. For example, if a headteacher receives a small bonus, putting it toward a loan can save money in the long run.

Always check if your loan has early repayment fees. With Metro Moneywise, there are no early repayment fees and you only pay interest on your outstanding balance.

11. Fees and charges

Beyond interest, some loans come with additional fees:

• Arrangement fees
• Late payment fees
• Administration or processing fees

Even small fees can add up, so it’s worth comparing options carefully.

12. Guarantor

A guarantor is someone who agrees to cover your loan repayments if you can’t. Some lenders may require one for larger loans or if your credit history is limited. For example, a newly qualified teacher might use a parent as a guarantor to help secure their first personal loan.

13. Affordability checks

Responsible lenders, like us, carry out affordability checks to ensure you can repay the loan without financial strain. We consider income, expenses, existing debts and sometimes irregular pay patterns, which can be useful for staff with variable hours like supply teachers or exam invigilators.

14. Payday loans vs personal loans

Payday loans are short-term, high-cost loans and are generally not recommended for long-term financial needs. Personal loans, like those we offer, are more manageable, with lower interest rates and predictable repayments.

Financial support for life

Understanding the language of lending helps you borrow responsibly, plan effectively and avoid unnecessary financial stress. That’s exactly what we want for our members at Metro Moneywise Credit Union. If you’d like to find out more, simply contact our team. Alternatively, you can join online if you work in education to access safe savings, responsible lending and financial support for life.