Definitions
ACH (Automated Clearing House) – A way to automatically transfer money between bank accounts in the US without paper checks, wire transfers, or credit card processing.
APR – This stands for Annual Percentage Rate. Unlike an interest rate, APR includes interest rate and any additional fees applied to the loan at closing.
Balance – The amount a borrower owes on their credit card account or the loan.
Bankruptcy – A legal procedure through which a borrower who can no longer pay their debts liquidates their assets to pay their debts or negotiates a repayment plan to pay installments to creditors according to the approved schedule.
Budget – A financial plan to manage money and savings based on given income and expenses.
Cap – The maximum rate a borrower may be obliged to pay and the highest rate a lender can earn on a variable rate credit.
Cash advance – A form of small short-term loan available for borrowers who cannot access other sources of credit. Cash advances can help cover unexpected expenses or stretch funds between paychecks.
Charge off – This refers to debt that cannot be collected because the borrower has become delinquent. The debt can be sold or transferred to a collection agency in such a case. Thus it is not written off entirely and can destroy the borrower’s credit history.
Checking account – A type of bank account commonly used for daily transactions. Using their checking account, the holder can easily write checks, make deposits, or take out cash with the debit card.
Collateral – Any property or asset pledged by a borrower to secure a loan, i.e., prove their intention to repay the debt.
Compound interest – The interest on a loan calculated based on the original principal amount and the accumulated unpaid interest from the previous calculation time frames.
Co–signer – A person who applies for a loan with the primary borrower who may not qualify on their own. Co-signer also signs a loan agreement and commits to repaying the loan if the original borrower defaults.
Credit – A type of financing that allows paying for goods or services at a later scheduled date.
Credit request – Any formal request or application from a borrower to a lender to get approval for credit.
Credit bureau – A data collection organization that gathers and researches the credit histories of potential borrowers and provides these reports to lenders so that they can evaluate borrowers’ creditworthiness and make decisions.
Most lenders request credit reports from Experian, TransUnion, and Equifax, as they are considered the largest and most accurate credit bureaus.
Credit card – A card issued by a bank that allows holders to make cashless transactions and has an established credit limit based on the holder’s credit score, income, etc.
Credit counseling – A process of assisting consumers in resolving various financial challenges, like repairing their credit, budgeting to pay off their debts, etc. In general, credit counseling helps to improve one’s money management skills.
Credit limit – The maximum amount of money allowed to be spent on a line of credit or credit card.
Credit line – A type of flexible revolving credit, allowing a borrower to access a pre-set amount of money (limit) for a specific period. “Revolving” means you can borrow and repay money repeatedly while paying interest on the balance carried over from month to month.
Credit report – A document that contains the history of a borrower’s debt repayments, existing debts, late payments, etc., produced by credit reporting agencies based on the information provided by lenders and court records.
Creditor – An individual or financial institution (bank, lender, credit union, etc.) that provides credit to another party to borrow money.
Debit card – A payment card issued from a bank commonly used for daily purchases or cash withdrawals. Debit cards deduct money from a holder’s checking account.
Debt – The amount of money owed to a creditor (whether a person or entity like a lender, bank, etc.).
Debt Consolidation – A strategy of debt refinancing that involves combining two or more loans or other debts into one, usually with a longer repayment term and lower interest rates.
Default – A failure to meet the liabilities on loan, i.e., a failure to repay it according to the agreed terms.
Delinquency – Failing to make payments on time.
Direct Deposit – An automated method of depositing funds electronically into an individual’s bank account without paper checks.
Equal Credit Opportunity Act – A federal law prohibiting lenders from discrimination based on race, sex, age, religion, and any other factors unrelated to actual loan eligibility criteria.
E-Signature – A digital alternative to a regular pen and ink signature, a technology that allows electronically associating a signature or its equivalent to traceable personal data, for example, biometrics.
Fair Credit Reporting Act – A federal law that entitles borrowers to know what information credit bureaus have about them and to dispute incorrect data, if any.
Federal Deposit Insurance Corporation – An agency that provides insurance to consumers’ deposits in their savings and also supervises financial institutions for safety and promotes their compliance with consumer protection.
Finance charge – The cost of the credit or interest expressed in dollar equivalent.
Fixed interest rate – An interest rate that remains unchangeable over the life of the loan.
Foreclosure – A legal process of seizing or selling the property pledged as collateral that may occur if the borrower defaults on the loan.
Installment loan – A loan that must be paid back in regularly scheduled payments (installments) over a set period.
Interest – The cost charged for borrowing money.
Interest rate – A rate expressed as a monthly or annual percentage, determining a fee the borrower must pay to borrow a specific amount of money.
Judgment – A final order in a legal action or proceeding made by the court after considering all the relevant circumstances of a particular case.
Late payment fee – A charge a borrower must pay for failing to make payment on a loan on the due date.
Lease – A legal contract where one party conveys some asset or property to another for a set period in return for payment.
Lender or Lending Partner – An individual or institution that lends money to a borrower who then must repay it with interest.
Liable – the same as legally responsible.
Lien – A lender’s right to keep some property belonging to the borrower until a debt is paid back.
Loan – Any amount of money that is borrowed and expected to be repaid with interest.
Loan Agreement – A formal contract between a lender and a borrower that outlines the loan terms.
Mortgage loan – A type of loan used to purchase a home, land, or another piece of real estate.
Public Record – Information about an individual’s financial obligations (including but not limited to child and spousal support) that is recorded and stored by the government at all levels.
Refinance – The action of paying off existing debt by taking another debt obligation under different terms, lower interest rates, etc.
Repossess – A process of surrendering a property that has been pledged as collateral for a loan to a creditor.
Right of rescission – The borrower’s right to cancel some types of loans within three working days.
Savings account – A deposit account that allows limited transactions but is used to keep money out of the checking account while earning some amount of interest.
Secured loan – Any loan that requires the pledge of some asset or valuable property as a condition of borrowing. Collateral is aimed to protect the lender if the borrower defaults.
Security – check collateral.
Simple interest – The interest calculated based on the principal (original) loan amount for a certain period.
Title – A legal document that proves one’s ownership of an asset or property.
Truth in Lending Act – A federal law that promotes disclosure of loan terms, costs, interest rates, fees, etc., to borrowers to ensure they can make informed loan decisions.
Unsecured loan – A loan that allows you to borrow money without providing any type of collateral.
Variable interest rate – An interest rate that can change over the life of a loan, as it is based on the current index and market interest rates.
Yield – The rate of earnings paid on money market accounts, bonds, or savings.
