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Category: Financial Terms & Definitions

What is a Credit Score?

Your credit score is a number based on several different factors that gives lenders an indicator of whether or not you are likely to pay your debts. Any time you apply for a car loan, mortgage, credit card, or other form of credit, the lender will first check your credit score. The higher your credit […]

What are Small Consumer Loans?

Small consumer loans can be used to finance just about anything—from an automobile, to your education, to paying for debts. Depending on the interest rate and other terms, small consumer loans can be a great way to take care of the things you need, as well as to build your credit. Some of the most […]

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 a Fixed Interest Rate?

A fixed interest rate refers to a loan in which the rate of interest does not change over time. This is the opposite of a variable interest rate. For instance, a home buyer who takes out a variable rate mortgage might find that their monthly payment rises when the Federal Reserve increases interest rates, while […]

What is a Personal Loan?

A personal loan is an instrument that can be used to finance all manner of things. When taking out a personal loan, the individual borrows a set amount of money and agrees to pay it back over a set period of time. These types of loans are sometimes called signature loans, quick loans, easy loans, […]

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 Total Paid on a Loan Mean?

Total paid is the total amount of principal and interest that is paid over the entire term of the loan. This can be determined by taking the monthly payment amount and multiplying it by the number of payments. As an example, Ken has fulfilled the terms of the installment loan he got to help his […]

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 a Principal on a Loan?

The principal of a loan is the amount of money borrowed before interest is applied. Essentially, it is the cost of the item, and the amount owed decreases with each payment. The principal might help a borrower cover the full financial need of a particular situation, such as covering an emergency expense, or it might […]

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 […]