Financial Terms & Definitions
The process of paying off a balance over a predetermined amount of time in regular, equal payments. By knowing what payments to expect every period, it gives the borrower a clear pathway out of debt.
Read more about amortization.
A person who receives a loan from a lender and, in turn, must repay the loan according to an arrangement worked out between the two parties.
Read more about borrowers.
Your credit score is a calculation banks and lenders use to determine how likely you are to pay back your debt. This three-digit score ranges from 300 on the lowest side, to 850 at the highest end. The better your score, the more qualified you’ll be for loans and credit with favorable terms.
Read more about credit scores.
Cycle of Debt
The cycle of debt is the negative cycle of spending more money than what is brought in, then borrowing money or taking on credit card debt to pay for increasing costs. If something is not done to stop the cycle, it eventually leads to default.
Read more about the cycle of debt.
An individual’s debt-to-income ratio is all of their monthly debt payments divided by their monthly gross income. The computed outcome is a way for lenders to measure the ability of an individual to manage the payments they will have to be making every month in order to repay the money that was borrowed.
Read more about debt-to-income ratio.
When a borrower defaults on a loan, it means they have stopped making payments towards the amount, resulting in sometimes serious implications such as additional fees, legal intervention, and more.
Read more about defaulting on a loan.
A deferment is an agreement between a borrower and a lender to suspend payments during a specific amount of time. There are many reasons someone might request a deferment.
Read more about deferments.
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. Borrowers taking out signature loans, quick loans, and installment loans can choose a fixed interest rate for the repayment of the money they have borrowed.
Read more about fixed interest rates.
A provision on a loan which allows payment to be received within a period of time after the actual due date. No late fees will be charged during this typically short period, and it does not result in cancellation or default of the loan.
Read more about grace periods.
A specific dollar amount that an individual receives from a lender and agrees to pay back. The borrower is then set up on a schedule of payments with each installment being the same amount, spread out over a length of time. This amount consists of two parts: the principal and the interest.
Read more about installment loans.
When an individual takes out a loan, they must also make additional payment to the lender in exchange for use of the money. This additional payment is added onto the principal amount and is determined by the annual percentage rate (or APR) dictated by the lender. Interest is paid over the period of time it takes to pay the loan back in its entirety.
Read more about interest.
The total amount of interest that is paid over the term of the loan. This can be determined by taking the total paid and subtracting the principal amount.
Read more about interest paid.
A fee that the lender charges to an individual borrowing money. Generally, it is the amount of interest due per period expressed as a percentage of the principal on the loan.
Read more about interest rates.
Military Lending Act (MLA)
A regulation enacted in 2007 and updated in 2015 by the Department of Defense that provides certain protections and restrictions in lending practices for service members, their spouses, and their dependents.
Read more about the Military Lending Act.
The total amount of money paid from month-to-month, consisting of the principal, the interest rate, and the full term of the loan put together.
Read more about monthly payments.
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.
Read more about personal loans.
People interested in taking out a loan may seek out a lender who will then check things like their income and credit history to verify their ability to repay the loan. Included in this pre-approval is the individual’s creditworthiness as well as the amount of money they are able to take out.
Read more about pre-approval.
Principal is a base loan amount a borrower accepts before any interest rates or fees are applied to a loan.
Read more about principal.
Small Consumer Loans
A small consumer loan is a secured or unsecured loan borrowed from a lender to pay for any number of expenditures. These can include home equity lines of credit, credit cards, car loans, student loans, or other personal loans.
Read more about small consumer loans.
The total amount of time it will take for the borrower to pay off a loan received from a lender.
Read more about terms.
A term that means the full amount paid for the loan. It is computed by the monthly payment times the number of payments.
Read more about total paid.
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