Money Jargon - The Letter N

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Money Crocodile knows the finance world is full of terms, phrases, buzz words and jargon. The below terms will help you with terms beginning with the Letter N

On this page we explain,
National Insurance > Negative Equity > No Claims Discount > Non Status

National Insurance

National insurance is a tax collected from your income by the Treasury.
These national insurance contributions are used to pay for most social security benefits, provides payments to unemployed and sick and retired people as well as medical services. Thus the deductions from your pay help those people less fortunate or less able than yourself. There are 4 types of national insurance contributions.

Class 1 National Insurance Contributions
Both employers and employees pay class 1 contributions.
The amount contributed is based on a percentage of a persons gross earnings. The exact amount payable depends on whether or not you are contracted-out of the State Second Pension.

You must pay Class 1 National Insurance Contributions if:

• you work as an employed earner (employee) in the UK,
• you are 16 or over and under State Pension age (currently 60 for women, 65 for men)
• your earnings exceed a prescribed minimum level, known as the Earnings Threshold (ET).

Any income that is above the lower earnings limit would mean that a set percentage would have to be paid in national insurance contributions, this percentage would rise the more one earns. To put it simply, the more you earn the more you pay.

Class 2 National Insurance Contributions
The self employed pay class 2 contributions.
As long as the income is above a lower earnings limit, contributions are at a weekly flat rate.
Paying Class 2 contributions means that you are give entitled to most social security benefits, but excludes unemployment, invalidity or widows pension.

Class 3> National Insurance Contributions
Class 3 contributions are voluntary.
These contributions are paid by those not earning a sufficient enough amount to pay Class 1 or Class 2 contributions. Class 3 contributions are used to top up benefit entitlement to enhance the state pension.

Class 4 National Insurance Contributions
The self employed pay class 4 contributions.
Class 4 contributions are paid on profits which are subject to income tax. Contributions are again at a set percentage, of the profit earned. Class 4 contributors receive no extra social security benefits, however the self-employed do receive tax relief on their contributions.

Negative Equity

Negative equity is when the value of a property is less than the mortgage outstanding on that property.
The 'Equity' in a property is the difference between the market value of the property and the amount borrowed to purchase it, (usually a mortgage). To have 'equity' in a property the value of the property should be greater than the money borrowed in order to buy it. Negative Equity usually only happens when property prices fall, usually a while after purchasing. Borrowers who buy property at the height of a property boom could be more at risk of negative equity, especially if they extended themselves when arranging the mortgage loan. Should the property market fall again then they may find they now owe more than their property is actually now worth.
In today's property market negative equity is highly unusual, however, there is always a chance that property prices could fall dramatically.
When a property is in negative equity it will be harder to sell, the borrower will not be able to sell the property for the amount they borrowed and will not make any profit on it until the market recovers.
A positive thought on negative equity is that although property values may fall it should only be temporary, and statistics show a steady rise in property over the last few decades. If possible ride it out, it is only a matter of time until property prices will rise up again.

No Claims Discount

No claims discount is a term most frequently found in motor insurance, and is a reward for not making a claim on the insurance policy. The reward typically comes in the form of a discount on the cost of your motor insurance, the reward may rise as the number of years you have without making a claim increases.
It is a real possibility that paying for minor accident costs could be cheaper in the long run than losing your no claims discount. An unblemished no claims record is a reward worth preserving.
If you are concerned that one claim could wreck your no claims discount, you can protect it. Insurers offer policies where for an additional premium, you are permitted to make a number of claims without your no claims discount being affected.

Non Status

Non status is a term used to describe an individual who is unable to prove their income or have yet to establish a credit history. When you can not provide any proof of your income or have little or no credit record, lenders can consider you to have a non-status credit rating when performing a credit check..

Non Status Credit Scores
Typically people who score 'non status' on credit checks include,

• The Self Employed, they have to self-certify their income to get finance.
• Contract Workers, without a regular income.
• Seasonal Workers, who have income only at particular periods.
• Unsalaried Workers, who are bonus or commission paid.
• Any Individuals who have yet to build a credit history file, in other words those who have not borrowed finance before.

Need Finance - But are Non Status
Many lenders are just not prepared to lend to people who do not have good credit rating scores. If you have a very bad credit rating you should find any ways possible to show that you have had a good credit history in the past, you could use your current mortgage statements, if you are a home owner, to show how reliable your repayments have been. If you are a tenant, ask your landlord to provide a reference to certify that full rental payments have always been punctual. You can find lenders who are willing to lend to people with non status ratings, the credit granted however may cost you more due to higher interest charges. The greater the risk to the lender the higher the interest charged will be.