List of Terms
Here is a list of loan and finance terms with definitions:
- APR – Annual Percentage Rate: This is the annual rate of interest charged on a loan, including fees and other costs associated with the loan.
- Amortization – The process of paying off a loan through equal, periodic payments that cover both principal and interest.
- Collateral – Property or other assets that a borrower pledges to secure a loan. If the borrower fails to repay the loan, the lender can seize the collateral to satisfy the debt.
- Credit score – A numerical value assigned to a borrower based on their credit history and other factors. The score is used by lenders to assess the borrower’s creditworthiness.
- Debt-to-income ratio – The ratio of a borrower’s debt payments to their income. This is used by lenders to assess the borrower’s ability to repay the loan.
- Default – Failure to make loan payments as agreed. This can result in the lender taking legal action to recover the debt.
- Equity – The difference between the value of a property or asset and the amount owed on any loans secured against it.
- Interest – The cost of borrowing money, usually expressed as a percentage of the loan amount.
- Lien – A legal claim on a borrower’s property, used as collateral to secure a loan.
- Principal – The amount of money borrowed, excluding interest and fees.
- Refinance – The process of replacing an existing loan with a new loan that has more favorable terms, such as a lower interest rate or longer repayment period.
- Secured loan – A loan that is backed by collateral, such as a car or home.
- Unsecured loan – A loan that is not backed by collateral and is based on the borrower’s creditworthiness.
- Variable interest rate – An interest rate that can fluctuate over time based on market conditions.
- Repayment term – The length of time over which a borrower will make loan payments.
- Grace period – A period of time after the due date of a loan payment during which the borrower is not charged a late fee.
- Installment loan – A loan that is repaid in equal installments over a fixed period of time.
- Prepayment penalty – A fee charged to a borrower for paying off a loan before the end of the term.
- Origination fee – A fee charged by a lender for processing a loan application.
- Co-signer – A person who agrees to take joint responsibility for a loan with the borrower, and whose creditworthiness is also considered by the lender.
- Balloon payment – A large lump-sum payment that is due at the end of a loan term, usually associated with certain types of loans, such as auto loans or mortgages.
- Default rate – The interest rate that applies to a loan after a borrower defaults on the loan.
- Debt consolidation – The process of combining multiple debts into a single loan, often with a lower interest rate and a longer repayment term.
- Late fee – A fee charged to a borrower for making a loan payment after the due date.
- Payday loan – A type of short-term loan that is typically due on the borrower’s next payday, often with very high interest rates.
- Securitization – The process of pooling together loans or other financial assets, and then selling them to investors as securities.
- Underwriting – The process of evaluating a borrower’s creditworthiness and other factors to determine whether to approve a loan application.
- Variable-rate loan – A loan with an interest rate that can change over time, based on market conditions or other factors.
- Cosigner release – The process of removing a cosigner’s name from a loan once the borrower has made a certain number of on-time payments.
- Loan servicer – The company that manages a loan on behalf of the lender, including collecting payments and providing customer service to borrowers.
- Adjustable-rate mortgage (ARM) – A type of mortgage loan with an interest rate that can change periodically based on market conditions.
- Annual fee – A fee charged annually by a credit card issuer, typically for access to certain perks or rewards.
- Appraisal – An evaluation of the value of a property or asset, used to determine the amount of a loan or other financial transaction.
- Bankruptcy – A legal process in which an individual or business declares that they are unable to repay their debts, and their assets are liquidated to repay creditors.
- Capital – The funds or assets that a business or individual has available for investment or other financial transactions.
- Credit report – A report that includes a borrower’s credit history, credit score, and other financial information, used by lenders to assess creditworthiness.
- Debt consolidation loan – A loan used to pay off multiple debts, usually with a lower interest rate and a longer repayment term than the original debts.
- Debt management plan – A program designed to help individuals pay off their debts through budgeting, negotiation with creditors, and other strategies.
- Default judgment – A legal ruling against a borrower who has failed to repay a debt, resulting in seizure of assets or other actions to recover the debt.
- Equity loan – A loan that uses the borrower’s home or other property as collateral, typically with a lower interest rate than unsecured loans.
- Factoring – The process of selling accounts receivable or other assets to a third party at a discount in order to obtain cash.
- Good faith estimate (GFE) – An estimate of the total costs associated with a mortgage loan, provided by the lender to the borrower.
- Interest-only loan – A loan in which the borrower pays only the interest on the loan for a set period of time, typically followed by a balloon payment or a conversion to an amortized loan.
- Joint account – A bank account or other financial account held by two or more individuals.
- Loan origination – The process of creating a new loan, including underwriting, approval, and documentation.
- Mortgage insurance – Insurance that protects the lender in the event that the borrower defaults on a mortgage loan.
- Prime rate – The interest rate charged by banks to their most creditworthy customers, often used as a benchmark for other loan rates.
- Secured credit card – A credit card that is secured by a deposit, typically used by individuals with poor or limited credit history.
- Term loan – A loan with a fixed repayment term, typically used for a specific purpose such as purchasing equipment or expanding a business.
- Title loan – A type of loan in which the borrower uses their vehicle title as collateral, often with high interest rates and short repayment terms.
- Variable annuity – An insurance product that pays out a variable amount based on the performance of an underlying investment portfolio.
- Secured loan – A loan that is secured by collateral, such as a car or house, which can be repossessed by the lender in the event of default.
- Unsecured loan – A loan that is not secured by collateral, typically with higher interest rates than secured loans.
- Credit score – A numerical representation of a borrower’s creditworthiness, based on their credit history and other factors.
- Refinancing – The process of replacing an existing loan with a new loan, often with lower interest rates or better terms.
- Debt-to-income ratio – A measure of a borrower’s ability to repay debts, calculated by dividing total monthly debt payments by monthly income.
- Default – Failure to repay a loan or other financial obligation, resulting in penalties, legal action, or other consequences.
- Collateral – Property or assets pledged as security for a loan, which can be seized by the lender in the event of default.
- Credit limit – The maximum amount that a borrower can borrow or charge on a credit card or other credit account.
- Home equity line of credit (HELOC) – A type of loan that uses the borrower’s home equity as collateral, typically with a variable interest rate.
- Installment loan – A loan with a fixed repayment schedule, typically with equal payments over a set period of time.
- Interest rate – The cost of borrowing money, expressed as a percentage of the total loan amount.
- Overdraft – A financial transaction in which a bank account is overdrawn, resulting in fees or penalties.
- Prepayment penalty – A fee charged to borrowers who pay off a loan before the end of the loan term.
- Prime borrower – An individual or business with a high credit rating and a low risk of default, often eligible for lower interest rates or better loan terms.
- Principal – The amount of money borrowed, not including interest or fees.
- Repayment term – The length of time over which a loan must be repaid, typically ranging from a few months to several years.
- Subprime borrower – An individual or business with a low credit rating and a high risk of default, often charged higher interest rates or subject to stricter loan terms.
- Title insurance – Insurance that protects against loss or damage resulting from defects in a property title.
- Usury – The illegal practice of charging excessive interest rates on loans or other financial transactions.
- Business line of credit – A type of loan that allows businesses to borrow money on an as-needed basis, up to a predetermined credit limit.
- Commercial loan – A loan designed for businesses, typically with higher loan amounts and longer repayment terms than personal loans.
- Credit score – A numerical representation of a business’s creditworthiness, based on its credit history and other factors.
- Debt-to-equity ratio – A measure of a business’s leverage, calculated by dividing total debt by shareholder equity.
- Debt service coverage ratio (DSCR) – A measure of a business’s ability to repay debt, calculated by dividing its net operating income by its debt payments.
- Equipment financing – A type of loan used to purchase or lease equipment for a business, with the equipment serving as collateral for the loan.
- Factoring – The process of selling accounts receivable to a third-party company in exchange for immediate cash.
- Inventory financing – A type of loan used to purchase inventory for a business, with the inventory serving as collateral for the loan.
- Invoice financing – A type of loan that allows businesses to borrow money based on outstanding invoices, with the invoices serving as collateral for the loan.
- Merchant cash advance – A type of loan that provides businesses with immediate cash in exchange for a portion of future credit and debit card sales.
- Personal guarantee – A legal agreement in which a business owner or other individual agrees to be personally responsible for a loan if the business is unable to repay it.
- SBA loan – A loan guaranteed by the Small Business Administration, often with lower interest rates and more favorable terms than traditional business loans.
- Secured business loan – A loan that is secured by collateral, such as equipment or real estate, which can be repossessed by the lender in the event of default.
- Term loan – A loan with a fixed repayment schedule and a set maturity date, often used for larger business purchases or investments.
- Unsecured business loan – A loan that is not secured by collateral, typically with higher interest rates than secured business loans.
- Working capital loan – A type of loan used to finance a business’s day-to-day operations, such as inventory purchases or payroll expenses.
- Amortization – The process of repaying a loan over time, with each payment consisting of both principal and interest.
- Auto loan – A loan used to purchase a vehicle, typically with a fixed interest rate and repayment term.
- Co-signer – An individual who agrees to be responsible for a loan if the primary borrower is unable to repay it.
- Credit report – A detailed record of an individual’s credit history, including credit accounts, payment history, and credit inquiries.
- Debt consolidation loan – A type of loan used to combine multiple debts into a single loan, often with lower interest rates or better terms.
- Home equity loan – A loan that allows homeowners to borrow against the equity in their home, typically with a fixed interest rate and repayment term.
- Installment loan – A loan with a fixed repayment schedule and a set number of payments, often used for larger purchases such as furniture or appliances.
- Interest rate – The percentage charged by a lender for borrowing money, typically expressed as an annual percentage rate (APR).
- Payday loan – A short-term, high-interest loan designed to be repaid on the borrower’s next payday.
- Personal loan – A loan used for personal expenses, such as home improvements or medical bills, typically with a fixed interest rate and repayment term.
- Prepayment penalty – A fee charged by lenders for paying off a loan early.
- Secured loan – A loan that is backed by collateral, such as a car or home, which can be repossessed by the lender in the event of default.
- Unsecured loan – A loan that is not backed by collateral, typically with higher interest rates than secured loans.
- Variable rate – An interest rate that can change over time based on market conditions or other factors.
- Credit score – A numerical representation of an individual’s creditworthiness, based on their credit history and other factors.