A guide to loan terms. It is a useful list of definitions of loan terms that may or may not be familiar to you. Keep it nearby as you will never know when you might need it for quick reference. ? Many people may wonder about common loan terms? words and phrases that are often tossed about when describing different types of loans that are assumed to be common knowledge. ? These common loan terms represent very important parts of the lending process, but to the person who isn't entirely sure what the terms mean they can be quite intimidating and cause the person to feel very uneasy about getting a loan. ? They might delay applying for a loan that they need because of a failure to understand common loan terms, and in doing so can miss out on better rates and the potential to save a lot of money in the long run.
Accrue
Process in which interest accumulates on a borrower's loan.
Amortization
A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest over the term of the loan.
Application
First step in the official loan process to gather and record information about the potential borrower.
Interest, Capital, and Interest Rates
Interest and interest rates are common loan terms that are a key part of the lending process, but many people might not know exactly how interest and interest rates work.
At its most simple, interest is the additional amount that you pay over the loan amount in order for the lender to make a profit off of you doing business with them. In other words, the interest that you pay is the amount that you pay for the service of lending, while capital is the amount that you repay because it is what you borrowed in the first place.
Interest rates are the percentage of the capital that you'll pay in interest? for instance, if you have an interest rate of 5% on a loan then you'll pay an additional 5% to the loan amount in interest.
Credit History
History of an individual's debt repayment. For most types of loans, lenders use this information to gauge a potential borrower's ability to repay a loan.
Credit Rating
Grade assigned to denote the net worth and credit standing Credit Report
of an individual or a business.
Record that lists all past and present debts and the timeliness of their repayment and documents an individual's credit history.
Debt
Amount owed to another that must be repaid.
Default
Failure to repay a loan according to the terms of the loan.
Lender
Entity that provides loan funds to the borrower. Depending on the type of loan, the lender may be a bank or other financial institution.
Loan
Money borrowed from a lending institution, usually repaid with interest.
Loan Applicant
Party applying to the lender for a loan.
Payment
Periodic (usually monthly) installments paid to a lender to be applied toward repaying your loan.
Principal
Loan amount borrowed from a lender, not including interest or additional fees.
Repayment
Process of paying back borrowed money.
Term
Time limit within which a loan must be repaid.
Variable Interest Rate
Interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly. |
