Loan Glossary
Understand key loan-related terms and concepts to make informed financial decisions.
Annual Percentage Rate (APR)
The annual rate charged for borrowing, expressed as a single percentage that represents the actual yearly cost over the term of a loan.
Amortization
The process of spreading out a loan into a series of fixed payments over time, covering both principal and interest.
Collateral
An asset pledged as security for a loan, which can be seized by the lender if the borrower fails to repay the loan.
Credit Score
A numerical representation of a borrower's creditworthiness, based on their credit history and financial behavior.
Debt-to-Income Ratio (DTI)
A measure of a borrower's monthly debt payments compared to their monthly income, used to assess their ability to manage repayments.
Equity
The difference between the current market value of an asset and the amount owed on it (e.g., a home).
Fixed-Rate Loan
A loan with an interest rate that remains the same throughout the entire term of the loan.
Interest Rate
The percentage of the loan amount charged by the lender for borrowing money.
Principal
The original amount of money borrowed in a loan, excluding interest and other charges.
Refinancing
The process of replacing an existing loan with a new one, typically to secure better terms or lower interest rates.
Secured Loan
A loan that is backed by collateral, such as a house or car, which the lender can seize if the borrower defaults.
Unsecured Loan
A loan that is not backed by collateral, typically relying on the borrower's creditworthiness.
Loan Term
The length of time over which a loan is scheduled to be repaid.
Prepayment Penalty
A fee charged by some lenders if the borrower pays off the loan before the end of the loan term.
Default
Failure to repay a loan according to the terms agreed upon in the loan agreement.