Loan Glossary

Dollar Hand has compiled a list of key financial and loan terms so that borrowers can make well informed decisions before borrowing money. See the glossary below:

 

Key Loan Terms And Financial Definitions

 

Amortization

The process of paying off a loan through a series of regular, equal payments, which include both principal and interest.

 

Annual Percentage Rate (APR)

The annual cost of borrowing, expressed as a percentage, which includes interest and any additional fees or charges.

 

Asset

Something of value that an individual or company owns, such as cash, real estate, or investments.

 

Bad Credit Loans

Bad credit loans are loans specifically designed for individuals with a poor or low credit score. These loans are more accessible to people who may have a history of late payments, defaults or other negative credit events. 

 

 

Bankruptcy

A legal process that allows individuals or companies to eliminate or restructure their debts when they can no longer meet their financial obligations.

 

Collateral

An asset offered as security for a loan, which can be seized by the lender if the borrower defaults.

 

Compound Interest

Interest that is calculated on the initial principal and any accrued interest, leading to exponential growth of the loan balance.

 

Co-signer

A person who agrees to assume responsibility for a loan if the primary borrower defaults.

 

Credit Counseling

Professional guidance provided to individuals facing financial difficulties to help manage debt and improve financial health.

 

Credit Limit

The maximum amount of credit a lender is willing to extend to a borrower, often associated with credit cards.

 

Credit Report

A detailed record of an individual’s credit history, including accounts, payment history, and other financial information.

 

Credit Score

A numerical representation of a person’s creditworthiness, based on their credit history and financial behavior.

 

Credit Utilization

The ratio of a borrower’s outstanding credit card balances to their credit limit, which can impact credit scores.

 

Debt Consolidation

Combining multiple debts into a single loan or payment to simplify and potentially reduce interest rates.

 

Debt Snowball

A debt repayment strategy where a borrower pays off their smallest debts first and then applies the money to larger debts.

 

Debt-to-Income Ratio

A measure of an individual’s debt relative to their income, used by lenders to assess creditworthiness.

 

Default

Failing to meet the terms of a loan or credit agreement, often resulting in penalties or legal action.

 

Default Risk

The likelihood that a borrower will fail to repay a loan, which affects the interest rate and terms offered by lenders.

 

Equity

The ownership interest in an asset or property after deducting any outstanding debts or liabilities.

 

FICO Score

A specific type of credit score developed by the Fair Isaac Corporation, widely used by lenders to assess creditworthiness.

 

Financial Advisor

A professional who provides guidance and advice on personal finance, investments, and financial planning.

 

Grace Period

A period after a loan due date during which the borrower can make a payment without incurring penalties or late fees.

 

Installment Loans

A loan that is repaid in equal installments over a specific period, typically with a fixed interest rate.

 

Interest-Only Loan

A loan where the borrower only pays interest for a certain period, with the principal remaining unchanged.

 

Interest Rate

The cost of borrowing money, expressed as a percentage of the loan amount.

 

Liability

A financial obligation or debt that a person or company owes to another party.

 

Lien

A legal claim on a borrower’s property, often as collateral for a loan.

 

Loan Origination Fee

A one-time fee charged by lenders to cover the cost of processing a loan application and disbursing funds.

 

Mortgage

A loan used to purchase real estate, typically with the property itself serving as collateral.

 

 

No Credit Check Loans

No credit check loans are loans that do not require a traditional credit check during the application process. Instead of assessing an applicant’s credit history, lenders may rely on other factors, such as income, employment status, or assets, to determine eligibility. These loans are often sought by individuals with poor or no credit histories who may have difficulty obtaining loans from traditional sources.

 

Payday Loans

A payday loan is a short-term loan that is typically due on the borrower’s next payday. These loans are often characterized by their small loan amounts and high interest rates.

 

Prepayment

Paying off a loan or a portion of a loan before the scheduled due date, potentially reducing interest costs.

 

Principal

The initial amount of money borrowed or invested, before interest or other charges.

 

Revolving Credit

A line of credit, like a credit card, that allows borrowers to continually borrow up to a specified limit as long as they repay the outstanding balance.

 

Secured Loan

A loan backed by collateral, which reduces the lender’s risk and often leads to lower interest rates.

 

Subprime Lending

The practice of extending loans to borrowers with lower credit scores and a higher risk of default, often associated with higher interest rates.

 

Underwriting

The process by which a lender evaluates a borrower’s creditworthiness and risk factors to determine loan approval and terms.

 

Unsecured Loan

A loan not backed by collateral, typically relying on the borrower’s creditworthiness, resulting in higher interest rates.

 

Concluding Thoughts

 

These terms should provide a broader understanding of various financial and loan-related concepts. Keep in mind that the financial industry is dynamic, and new terms and concepts may emerge over time.