Glossary
Welcome to the Till Glossary of financial terms. This glossary has been created to help you navigate through the world of personal finance, especially in terms of loans, thus helping you to better meet your financial needs.
Amortization is the process of paying off debt with a fixed repayment schedule. Each amortized payment counts toward both the loan and the interest on the loan.
Annual Percentage Rate (APR) is the measure of how much a loan will cost a borrower over the course of one year. It includes the loan’s simple interest rate, as well as any additional fees or charges.
An auto lease is a financial arrangement that enables an individual to obtain a vehicle for use without paying for it entirely. They get access to the vehicle for a certain term (usually two to five years) and then return the vehicle at the end of that period, sometimes with an option to buy it outright.
An auto loan is a loan that person takes out in order to purchase a motor vehicle. Auto loans are typically structured as installment loans and are secured by the value of vehicle being purchased.
“Bad credit” means a borrower has a low credit score. Any score between 300 and 630 is generally considered bad. Late payments, bankruptcy, and maxing out a credit card can all contribute to a lower credit score, and bad credit.
Bad debt refers to debt that is used to finance spending on non-appreciating items. This includes credit cards, auto loans and some personal loans. While these kinds of loans and financial products can be used responsibly to the benefit of the consumer, these debts still do not increase the borrower’s overall net-worth.
A balance is the amount of money available for withdrawal through a bank account, or an amount of money owed to a financial institution. It can also be used to describe the process of budgeting and tracking your finances, as in “balancing a checkbook.”
A budget is a plan for your money, within a certain amount of time. Making a budget means figuring out how much money you’ll have, what you need to pay for, and how much you’ll have left over.
A cash advance is a short-term loan provided through your credit card company. Cash advances come with much higher interest rates than normal credit card transactions.
A charge-off occurs when a lender removes a debt from their accounting books because it’s extremely past due. The lender absorbs the cost of the outstanding debt and doesn’t pursue payment, but the borrower is still legally responsible for the amount that’s owed.
A checking account is a bank account that allows customers to deposit and withdraw money by using paper checks, ATMs, and debit cards.
Collateral refers to an asset or property that a borrower gives a lender in order to secure a loan. If the borrower cannot repay the loan, the lender can then seize the asset or property to recoup their losses. Loans that involve collateral are called ‘secured loans.’
A collection agency is a business that is hired by a lender to recover overdue funds. The will either earn a fee on what they collect or will purchase the debt from the lender at a discount. They are known for being persistent and sometimes aggressive in their methods. They will sometimes sue a debtor and take them a court in order to legally seize their funds or assets.
Compound interest is interest that adds to a loan’s principal as it accumulates.
Credit is a way of borrowing. It basically means buying something now, and paying for it later. For example, if you make a purchase with a credit card or take out a loan, you’re required to pay it back in the future.
Credit bureaus are businesses that compile your credit history and calculate your credit score. They provide this information to lenders—among others—who use it to decide whether to grant you a loan.
A credit card is a plastic card issued by banks, businesses, and other financial institutions that enables a borrower to make purchases “on credit” and pay for them at a later date.
A credit check is an official review of the credit history listed in your credit report. Lenders, credit card companies, and others conduct credit checks to determine how likely you are to make payments on time.
Credit counseling is a service that provides support for borrowers facing problems with debt. It may consist of financial education, a debt management plan, or assistance navigating bankruptcy.
Credit history is a complete record of an individual’s creditworthiness. This information includes outstanding debts, repayment behavior, and credit information. Credit history is collected and organized in a credit report.
Credit limit is the maximum amount that a financial institution allows a client to borrow.
A report that has information about your credit and payment history. It shows how often you make payments on time, how much you’ve borrowed, and how much you currently owe. Lenders use this report to decide whether to give you a loan, and what your interest rate will be.
A three digit number that shows how trustworthy you are when you borrow. A credit score can range from 300 to 850, with a higher score being better. Your individual score is based on several things, like how much debt you have and whether you make payments on time.
Credit unions are like banks, but they don’t make money from their members. They’re known for helping people save money, and offering better options for borrowing. Unlike banks, which anyone can join, credit unions have requirements to become a member. Usually people are eligible to join based on where they work, where they live, their church, or their college.
A creditor is a person or institution that lends money to another. The creditor is then owed that money, usually with interest.
Creditworthiness is a description of an individual’s credit health and history.
A debit is any transaction that reduces the money in your bank account. The term is commonly used in reference to debit cards, which draw funds directly from your account.
Debt is money an individual owes to a lender. There are many types of debt, including personal debt, credit card debt, student loan debt, and more. Taking on debt can also mean incurring interest fees, meaning you’ll be charged money for the privilege of borrowing money.
The “Debt Avalanche” is a debt repayment method. You make the minimum payment on all of your accounts, but you target the debt with the highest interest rate to pay off first.
Debt Consolidation is a method for paying down debt. It involves combining many smaller debts into one larger debt—oftentimes by taking out a new loan or opening a new credit card. The new debt usually comes with more favorable terms than the old debts, and can save people money over time. It is most commonly used with consumer debt, but other forms of debt—such as student debt—can be consolidated as well.
Debt settlement occurs when a lender or collections agency agrees to settle a debt for less than the amount that the borrower owes.
The Debt Snowball is a strategy for debt repayment. It involves paying off all a person’s debts beginning with the debt that carries the lowest principal balance and then working up to the debt with the highest balance.
A debt trap is a situation in which a borrower is led into a cycle of re-borrowing, or rolling over, their loan payments because they are unable to afford the scheduled payments on the principal of a loan. These traps are usually caused by high-interest rates and short terms.
A debtor is any individual or institution that owes money to another individual or institution.
To default means to fail to repay a loan or line of credit. A borrower can default on their loan if they fail to pay back either the principal loan amount or the interest.
A deficit occurs when an individual or company doesn’t have enough money to cover their expenses and debt—it is the difference between cash inflow and cash outflow.
Credit counseling is a service that provides support for borrowers facing problems with debt. It may consist of financial education, a debt management plan, or assistance navigating bankruptcy.
A direct loan is a loan made directly from a lender to a borrower, rather than through a third party.
A dividend is a portion of a company’s earnings that is paid out to its shareholders. These payments can be made through cash, shares of stock, or other property. Dividends can also be issued by investment funds.
A down payment is an initial payment made on a large purchase, often expressed as a percentage of the total cost. The down payment is paid in full up front while the remaining cost is paid in installments, often through a loan.
A FICO score is a credit score developed by the FICO company. These scores are created using information from a person’s credit report about their history of using credit and managing debt.
A fixed rate is an interest rate on a loan that will remain the same over the course of the loan, so the amount the borrower pays in interest never changes.
Foreclosure occurs when you fail to pay the mortgage on your home. The lender seizes your property, evicts you, and sells the home.
Good credit is a loose term used to describe someone’s history of repaying what they borrow. If you have “good credit” it can mean you’re more trustworthy when you borrow. If you make payments on time, and only borrow or spend as much as you need, you’ll have better credit. This helps when applying for a loan or credit card because you’re more likely to be approved, and get better interest rates.
A Grace Period is the amount of time before interest or late fees start building up. There’s usually a grace period for credit card purchases, but not for cash advances. If you can pay on the due date, or during the grace period, you’ll save money by avoiding interest and additional fees.
A grant is a type of financial aid commonly provided by governments and philanthropic foundations. Unlike a loan, you don’t have to pay it back.
A hard credit check—also known as a “hard credit inquiry” or “hard pull”—is a type of credit check used to determine creditworthiness. Unlike soft credit checks, hard credit checks can lower your credit score.
Home equity loans allow you to borrow against the equity in your home. They can provide money for a major purchase, but come with the risk that you’ll lose your home if you can’t pay them back.
An Installment Loan is a loan that is designed to be over time in a series of equal, regular payments.
Interest is the cost of borrowing money. When you take out a loan or use a credit card, you’ll be required to pay back a specified amount in addition to what you borrowed. That amount is the interest. When you lend money or save money in certain bank accounts, you gain interest.
An interest rate is the percent of a principal loan amount that is charged to the borrower. For instance, if you borrow $100 at an interest rate of 20%, then you will pay back $100 plus another $20 of interest. Having a good credit score will make it easier to find lower interest rates.
An investment means spending money on something now, with the hopes that it will make you money in the future. Getting a college degree, buying stock, and buying a home are all considered investments.
The Internal Revenue Service, better known as ‘The IRS’, is a bureau of the Department of the Treasury charged with collecting taxes, enforcing the nation’s tax laws and administering the Internal Revenue Code.
Any person or company that offers money to people with the expectation that it will be paid back. Banks, credit unions, and loan companies are all lenders.
A line of credit is a flexible loan that grants a borrower access to money (up to a specified maximum amount determined by the bank or lender). Interest is only charged on the money that the borrower chooses to use.
A loan fee is any fee associated with a loan or credit card that does not include the interest rate.
Loan forgiveness means you are no longer expected to repay your loan. Certain circumstances might lead to forgiveness, cancellation, or discharge of your outstanding federal student loan balance.
A microloan is a loan for small businesses.
A mortgage is a loan to finance the purchase of your home or property—it’s likely the largest debt you will ever take on. In exchange for the money received by the homebuyer to purchase the property, the bank or mortgage lender will get the promise that you will slowly pay the money back, with interest, over a designated period.
A no credit check loan is a type of loan in which a lender evaluates your creditworthiness without conducting a “hard” credit check.
NSF stands for “Non-Sufficient Funds.” An NSF Fee is charged when a bank account does not have enough money in it to honor a check drawn on that account.
An online loan is a loan acquired through the internet. There are many different kinds of online loans. Some of them are safe, while others are not.
An origination fee is a fee charged by a lender to the borrower at the time a loan is provided to cover the costs of processing the loan.
An overdraft fee is a penalty banks charge an individual for making purchases that cannot be covered by the funds in their account.
Overdraft Protection is a service offered by banking institutions on their checking accounts that covers an account holder’s transaction even if their account lacks sufficient funds. Overdraft protection can be a line of credit or a link to an additional account or credit card. They come with additional fees and/or interest.
A pawn shop is an online or storefront business that offers small-dollar loans. Borrowers pledge personal property as collateral that the pawn shop holds and sells if the loan isn’t repaid. Pawn shops are often associated with predatory lending practices.
A payday loan is a type of unsecured, small-dollar, predatory personal loan that comes with short repayment terms and very high interest rates.
Peer-to-peer lending is a type of lending in which you get a loan from an individual—not a bank or financial institution. It is also known as P2P lending, person-to-person lending, or social lending. Peer-to-peer lending is most commonly done online.
Personal Debt (which is sometimes referred to “Consumer Debt”) is any financial obligation that is owed by an individual or a household, as opposed to by a business or government.
A personal loan agreement is a written contract between two private parties, usually friends or relatives, that details a personal loan arrangement between the two. This usually includes the date of the loan transaction, the projected repayment date, the amount of money borrowed, and any interest rate or other stipulations.
Predatory lenders are financial institutions that use deceptive practices and unreasonable terms to profit off of borrowers in desperate need of funds.
A prepayment penalty is a fee charged by lenders when borrowers pay off their loan before the end of the term.
The prime rate is the interest rate that banks charge borrowers who are the most trustworthy, or creditworthy, based on their borrowing history.
The principal is the amount of money that is borrowed through a loan. The term also refers to the amount of money that is left on the loan after payments have been made.
A private loan is a loan made by a non-federal institution such as a bank, school or state agency. The distinction most commonly applies to student loans. Private loans are often more expensive than federal loans and come with less-flexible payment terms.
To refinance means to take out a new loan to pay off an existing one, usually in order to get better interest rates or repayment terms.
To refinance a loan is to take out a new loan with more favorable terms to replace your old loan. This can result in lower monthly payments, lower interest rates and free up additional cash. However, it can also significantly extend the repayment period.
Repossession occurs when you fail to make loan payments and your collateral is seized. Your lender can then sell your collateral to recoup the money you owe.
To “rollover” a loan means to extend the loan’s due date by paying an additional fee. Loan rollover is most common with short-term payday and title loans, and is the way that some borrowers become trapped in a cycle of debt.
A savings account is a deposit account held with a financial institution that bears interest. Savings accounts offer less access to the account holder’s funds than a checking account would, but they offer much easier access to those same funds than most other investment products.
Secured and Unsecured Loans are the two basic kinds of loans. Secured Loans are loans backed by collateral pledged by the borrower. Unsecured Loans are loans with no collateral.They are issued solely on the creditworthiness of the borrower.
A soft credit check—also known a soft inquiry or soft pull – is a way to obtain information from a person’s credit report without impacting their credit score. Unlike hard inquiries, which are recorded on your credit report and can negatively affect your score, soft inquiries do not require an individual’s authorization before they can be run.
Subprime lending is a category of money lending that provides loans to borrowers with bad credit. Because the borrowers are deemed less likely to repay, the loans typically carry higher interest rates than those offered to borrowers with good credit.
The term of a loan is the pre-determined amount of time before the loan must be paid back in full, plus interest. Term can also refer to the conditions under which a loan is made, including the interest rate, monthly payment amount, and associated fees or penalties.
A title loan is a short-term loan that requires borrowers to offer their vehicle title as collateral. Title loans generally carry high-interest rates in addition to the risk of borrowers losing their vehicle if they’re unable to repay the loan.
Variable rates are interest rates that change periodically over the life of a loan. The rate can go up or down based on market conditions.
Wage garnishment is a legal tool that allows a lender, legal entity or institute to take money directly from your paychecks to cover debts you owe.
