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Search Results for: ratio

What is Debt-to-Income Ratio?

The debt-to-income ratio is a formula showing your monthly debts, divided by your monthly income. It is generally used to determine if your finances are in good shape and what, if any, improvements can be made to have less of your monthly income go towards monthly debt. Your debt-to-income ratio is also used by lenders […]

What is a Deferment?

A deferment is an agreement between a borrower and a lender to suspend payments during a specific amount of time. Deferments are sometimes automatic while others need to be requested. In the case of federal student loans—a common time when deferments are used—a deferment might be automatic when a student enrolls and maintains a half-time […]

What is Cycle of Debt?

The cycle of debt is a trap in which continued borrowing leads to increasing expenses. Eventually, minimum payments become difficult to manage. Unless the cycle is stopped, most people will eventually default on their loans, resulting in serious financial problems.  For example, Jane is bringing home $2,800/month from her job. Her monthly expenses, including her […]

What Does Term on a Loan Mean?

The term is the amount of time it takes to pay off the loan; usually in months. For example, 4 years would be 48 months (4 years times 12 months). By way of illustration, let’s say Brock is approved for an installment loan he plans to use towards the balance on a new car he […]

What is Pre-Approval?

In relation to personal loans, pre-approval is a term describing the borrower’s credit worthiness to take out a loan and how much they are able to borrow should they decide to go through with the process. Pre-approval on a loan is based on a number of measurable factors, including: Income Assets Credit score Employment Documentation […]

What is an Interest Rate on a Loan?

The interest rate is a fee the lender charges to the borrower for borrowing money. It can be a fixed interest rate (only one primary amount) or a variable interest rate (primary amounts vary). For example, Jesse has a fixed interest rate of 3% on an $800 loan he took out to pay for a […]

What Does Interest Paid Mean?

The total amount of interest paid over the term of the loan. It is calculated by the total paid minus the principal. By way of illustration, let’s say that Joyce finishes paying off the installment loan she took out to complete some home repairs. Her original balance (the principal) was $350. The total she paid […]

What is Loan Interest?

Interest is an additional percentage of a loan payment that is added to the principal of a loan paid every month to the lending agency (oftentimes, a bank) in exchange for holding the loan. The interest on a loan, once the loan is paid in full, is in addition to the principal amount the borrower […]