A to C
Accrued interest. Interest that’s accumulated on a loan since it was issued but has not been paid yet.
Adjustable rate. Also, variable rate. An interest rate that’s subject to change.
Amortization. A loan that has regular, scheduled repayments that go toward paying both the loan’s interest and principal.
Annual percentage rate (APR). An expression of a loan’s interest rates and fees as a percentage.
Appreciation. An increase in an asset’s value (such as a car or home).
Asset. Anything that someone owns that has money value, including cash, a home, owed debt, a trademark or patent.
Automated clearing house (ACH) payment. An electronic payment made through the ACH network from one bank account to another. ACH is used for direct deposit from your employer or when a lender transfers funds directly into your account.
Autopay. A service that allows you or a loan provider to automatically withdraw money from your account on a regular (usually monthly) basis.
Borrower. The person taking out a loan from a bank, credit union or other lender.
Broker. A third party that acts as an intermediary between lenders and borrowers for a fee.
5 Cs of credit. An easy way to remember what lenders look at when determining your creditworthiness. The five Cs are: Character, capacity, conditions, capital and collateral.
Capitalized interest. Interest that’s added to your loan’s principal instead of being treated separately.
Closing. Also, settlement. The final step in taking out a loan, when the loan agreement is signed and the funds are dispersed.
Cosigner. Someone who also signs your loans and holds responsibility to repay it if you default.
Compound interest. Interest that is periodically added to a loan based on your accumulated interest and principal.
Consumer reporting agency. Also, credit bureau. An agency that gathers information from your creditors to compile your credit report and credit score.
Creditworthiness. How a lender values your likeliness to be able to repay a loan. Your credit score is typically used as the best expression of your creditworthiness, though your income, debts, age, employment status also play a large role.
D to O
Debt-to-income ratio. Your gross monthly income divided by your gross monthly debt payments.
Default. A failure to repay debts, which can result in the seizure of collateral or lawsuits.
Deferred payment. An arrangement in which a borrower doesn’t have to start making payments on a loan until a certain agreed-upon time (common with student loans).
Depreciation. A decrease in an asset’s value (such as a car or a home).
Down payment. An initial payment you make upfront when purchasing an expensive item. A loan is used to cover the rest of its cost.
Equity. The difference between the value of an asset (like a car or home) and the balance of a loan used to pay for that asset.
Escrow account. A third-party account that holds money before two parties go through with a transaction. Common with debt settlement companies.
FICO score. Your credit score assigned by one of the three credit bureaus: Experian, Equifax and TransUnion. When a lender sets credit score requirements, they’re most likely talking about your FICO score.
Grace period. The amount of time a borrower has to make a payment before the lender charges a late fee.
Guaranteed loan. A loan where a third party agrees to assume at least part of the debt if the borrower defaults.
Interest. The amount a lender charges for letting someone borrow its assets, typically expressed as a percentage.
Loan agreement. The contract that a borrower signs agreeing to the lender’s terms and conditions.
Minimum and maximum loan amount. The largest and smallest amount of money a lender is willing to let someone borrow.
Negative amortization. When the loan payment doesn’t cover the accrued principal for that period, which is added to a loan balance.
Origination fee. A fee you pay to cover the cost of processing your loan, usually between 1% and 5% of the amount you borrow taken out of your funds before you receive them.
P to Z
Prepayment. Paying more than your monthly payment on a loan,
Prime rate. The interest rate that lenders give to their most creditworthy customers, generally based on the Federal Reserve or Wall Street Journal’s prime rate.
Principal. Your loan balance, not including interest.
Promissory note. The document you sign before you take out a loan legally binding you to the terms and conditions of repayment: Your loan documents.
Purchase option. The option to buy a leased car or home, typically for a balloon payment.
Refinance. Taking out another loan with more favorable terms to pay off a debt.
Revolving debt. Open-ended access to a certain amount of funds that you pay off as your borrow, (like a credit card).
Secured loan. A loan that is backed by collateral.
Simple interest. Interest that’s calculated based on your loan’s balance, not balance and accumulated interest.
Strong credit. Having a long history of repaying debts on time with a high credit score — good credit or higher. Typically necessary to get approved for a loan with a competitive rate.
Subprime. Credit for borrowers with bad or poor credit, typically with higher interest rates.
Term. The amount of time a borrower has to repay a loan.
Title. A document that proves ownership of an asset (like a car or home).
Unsecured loan. A loan that is not backed by collateral.
Upside-down loan. When you owe more money on an asset that it’s actually worth.