Jargon buster: financially linked, National Insurance and secured loans
Published 18 September 2015
Why do we pay National Insurance and what is a notice of disassociation?
If you’re looking to understand some common financial terms, make sure you take a look at the first and second parts of our easy-to-understand guide. We’ve already discussed APR and AER as well as bounced payments and credit history. Ready for more financial jargon explained? Let’s move onto the third and final part of our guide!
We’ll tell you what it means to be financially linked to another person and how this could affect your credit history, and we’ll take a look at what National Insurance is and why you pay it. We’ll also tell you about the difference between secured loans and unsecured loans and find out what can happen if you don’t pay them back.
When you open a joint bank account with someone else (usually a partner), you’ll become financially linked. This can also happen if you apply for credit together, for example if you take out a mortgage together or apply for a loan in both of your names.
This means that their credit history can affect your ability to get accepted for credit. If they’ve had problems with borrowing in the past – like late payments, defaults or they’ve been made bankrupt – this could have an effect on your borrowing potential. Some lenders might turn you down based on your partner’s credit history so if their credit history is a little patchy, you might decide to keep your accounts separate.
Your credit history doesn’t follow your Facebook status so it has no way of telling if you’re no longer in a relationship. If you’ve broken up with someone, you probably won’t want to be financially linked anymore. The first thing to do is close any accounts that you hold jointly and pay off any jointly held debts. You can then apply for a ‘notice of disassociation’ to get their details removed from your credit history, and you can do this at each of the three main credit reference agencies: Experian, Equifax and CallCredit.
National Insurance is a type of tax that is taken directly from your wages and also paid by your employer. This means it’s not up to you to organise paying it (unless you are self-employed) – your employer will deal with this. It’s not the same as Income Tax – this will also be deducted from your wages automatically if you are employed. Check the Gov.uk site to see how much NI you’ll pay, but for most people it’s 12% of everything you earn over £155 in a week.
Your National Insurance contributions are mainly used to fund welfare benefits such as Jobseeker’s Allowances and State Pensions. If you are unemployed you won’t be paying into your National Insurance pot, which could affect your benefits or State Pension in the future. You might be able to apply for National Insurance credits to cover your National Insurance payments while you’re out of work so you’ll still be able to qualify for the State Pension when you retire.
Taking out a personal loan can be more difficult if you’ve had issues with your credit history or if you need to borrow a lot (for example for a major home improvement project). You might be turned down by some lenders who just see you as too much of a risk. However, they may be more willing to accept you if they have some ‘security’ for the loan.
You can offer up your home as collateral and this is known as a secured loan. However, you also risk losing your home if you can’t keep up with the repayments, so it’s important to only take out a secured loan if you’re as sure as you can be that you’ll be able to pay it back.